Donald Trump’s recent win in the US presidential election could point to trade policy uncertainty, including higher tariffs, which are broadly negative for emerging markets, especially those with global exposure.

Within Asia, we expect that markets or companies that are more focused on domestic growth will be favored. India, for example, is more muted from tariff threats. Meanwhile, within China, while messages from the government to support economic growth is clear, the market needs a stronger stance on policy announcements and implementation.

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 October 2024

China / Hong Kong equities

• Donald Trump is elected as the next US president, with Republicans likely taking control of both the Senate and the House. His policies have been centered around tax cuts, deregulation, protectionism (leading to heavy tariffs), and lowering inflation. The immediate action of the market was straightforward, with higher Treasury yields due to concerns about the increasing fiscal deficit and the uncertainties in the rate cut path. As a result, the USD rallied strongly. With hopes of tax cuts and deregulation, the stock market reached an all-time high, with the small-cap index leading the rally as they are expected to benefit the most from the policies. This positive momentum and strong USD will continue to drive flows into the US equity market in the near term.
• With the stronger USD and higher yields, investors have become cautious toward emerging markets. In China/Hong Kong equities, concerns over heavy tariffs added to the defensive stance. As rate cuts have become very uncertain for 2025, Hong Kong equities, which are mostly interest rate-sensitive, have retreated. With the weaker RMB, Hong Kong-listed Chinese equities will likely be under pressure.
• However, all eyes are on the announcement from the NPC about the stimulus package which the market has already expected RMB 10 trillion as the base case. A bigger amount than that or more direct policies towards stimulating consumption and the property market will be needed to surprise the market.

China A-shares

• Given going into Trump 2.0, investors will focus more on China’s domestic sectors as they are expected to be stimulated by the government to offset the potential drag on exports from the expected higher tariffs. The message from the government to support economic growth is clear, but the market needs a stronger stance on policy announcements and implementation.
• With more diversified domestic sectors in the A-shares market, onshore Chinese equities are expected to outperform offshore-listed Chinese stocks.

Asia ex-Japan equities

• The strong USD will not be beneficial to Asia ex-Japan equities. In addition, with Trump’s potential broad-based tariff policy on all goods exported to the US, export-oriented countries, such as Taiwan, Korea, and Singapore, would be under pressure.
• On the other hand, markets with strong domestic growth, such as India, will be more muted from the tariff threat.
• However, with the uncertainty in the US rate cut path, Southeast Asia countries that need to cut interest rates to support their economies would find themselves in a more difficult situation if US rates stay higher for longer.

Emerging market ex-Asia equities

• Geopolitical risks remain highly uncertain, especially with the recent escalating situation in North Korea, Russia, Ukraine, and the Middle East. Adding to these uncertainties is the likelihood of Trump cutting defense spending during his term. In the near term, the strong USD and lower oil prices will not be favorable to emerging market equities.

Japanese equities

• With the Liberal Democratic Party losing Japan’s parliament majority in the election at the end of October, the current Prime Minister will likely soon step down, and another election for a new PM will be held in November. Given the political uncertainty, investors are mostly on the sidelines first.
• The recent strong USD helps Japanese equities as the JPY weakens. However, this may be offset by threats of potential tariffs.

Asia investment grade bonds

• The upward shift of the US yield curve (given the uncertainty of rate cut path under Trump 2.0) and the steepening of the yield curve, with long yields rising more due to the concern of rising fiscal deficit, hurt Asia investment grade bonds as most investors have extended duration previously with the rate cut expectation. Spreads continued to tighten, but they are already at a level that is extremely tight.

Asia high yield bonds

• The narrower absolute and relative Asia high-yield spreads are making valuations less attractive. The stronger USD and higher yields also add to funding pressure to high yield issuers.
• With a more defensive stance towards emerging markets, including Asia, there could be some profit-taking in Asia high yield bonds towards the year’s end.

Emerging market debt

• Spreads have been at tight levels below historical averages. With increasing uncertainties in the market, the outlook for emerging market bonds remains volatile. Also, the heightened geopolitical risks will continue to weigh on the market.

Gold

• Gold prices will likely correct after breaking their historical high. With some money flowing from gold to cryptocurrencies, given the expected deregulation by Trump in this space and more risk in equities, gold is more likely the first to consolidate.
• However, in the longer term, heightened geopolitical risks will continue to support the outlook of gold. In addition to geopolitical worries, investors are concerned about the de-dollarization trend as BRIC countries are developing a new payment system, which will likely continue to support gold prices.

Multi asset

• A multi-asset strategy offers lower volatility compared to traditional single-asset or balanced portfolios. However, the correlation between risk assets, such as equities, credits, and commodities, has recently increased dramatically. In an uncertain environment, income becomes an essential source of return for investors.

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^{The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All materials have been obtained from sources believed to be reliable as of the date of presentation, but their accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.}

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