27th November 2016 by Darius McDermott
One of the biggest concerns for emerging markets in the event of a Trump win was uncertainty – what exactly would he do to ‘make America great again’? The president-elect eliminated some of the ambiguity this week when he pulled the plug on US involvement in the Trans-Pacific Partnership (TPP) trade deal.
The announcement is something of a blow for the 12 countries whose ambassadors have spent literally years of sleepless nights negotiating tariff reductions, environmental standards, copyright and patent protections and much more. An agreement was finally reached in 2015.
Access to the US market was a key incentive and Asia Pacific particularly stood to benefit, with seven participating nations. Markets including Malaysia, Vietnam, Singapore, Japan and Brunei were gearing up to increase exports to America, each predicting a boost to economic growth as a result of the deal.
Technically, the TPP can still proceed, but without America it certainly won’t be great. Yet I’m far from discounting the region from an investment perspective right now. In fact another agreement has been brewing – the Regional Comprehensive Economic Partnership (RCEP). Unlike the TPP, the RCEP includes China, meaning a regional trade deal with a global economic powerhouse is still on the cards.
A raft of other initiatives are also in progress including the Free Trade Area of the Asia Pacific and China’s ‘modern day silk road’, which is essentially an infrastructure project to increase roads, railways and connectivity within central and south-east Asia.
Another thing to remember is that Trump has not said he doesn’t want to trade with these countries, merely that he wants individual agreements. And no matter how strong Trump’s protectionist stance, American consumers will surely not accept a sudden hike in prices on imported goods, which could well result if new trade deals are not negotiated.
Turning from the economy to markets, it’s also worth noting that Asia is still a good place to find quality companies at reasonable prices. Valuations are attractive across the region and at a significant discount to world equities. The key is to focus on stock picking.
One fund manager whose style I find particularly reassuring is Matthew Dobbs, who runs the Schroder Asian Alpha Plus fund. He has a huge analyst resource at Schroder from which to draw investment ideas, and he is known for his extensive due diligence. He puts a heavy emphasis on corporate governance, which gives him a good chance of finding companies that have a track record of protecting shareholder interests regardless of economic challenges.
Another that stands out from the pack and is probably not as well-known as it deserves to be is Matthews Asia Pacific Tiger. Matthews Asia is a specialist Asia group based in San Francisco and this fund is its flagship. I like it for the current environment because it invests more heavily in Asian consumer companies than Asian exporters, which may mean it is less vulnerable to trade troubles.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.