The tariff events in recent weeks have created ripples across markets. Yet beneath the surface of turbulence, we’re witnessing remarkable resilience and adaptation among Asian companies. Our role as investors is not just to weather these changes but to recognize the structural shifts they represent. This month’s report delves into these themes, offering insights into how we’re positioning ourselves for what promises to be an eventful year ahead. We also provide an initial take on the earnings season so far, which has largely been constructive. These times remind us that in an industry where active management faces increasing pressure, survival requires vigilance and adaptability. Only the paranoid survive. Enjoy!
The MSCI All Country Asia Ex-Japan Index was up 0.76% (in USD terms1) over the month of April, despite initial extreme volatility from the tariff turmoil. Relative to the rest of the region, Thailand and the Philippines were the top performers, while China and Hong Kong were the laggards. Sector-wise, Consumer Staples and Utilities were the top performers, while Consumer Discretionary and Materials were the main underperformers.
MSCI China was down 4.25% in April amid heightened geopolitical tensions. Despite slumping US exports, China’s overall exports showed resilience, rising 8.1% y/y in April (following March’s 12.4% increase) and exceeding market expectations.2 This resulted in a trade surplus of USD 96 billion, only slightly below March’s USD 102 billion.3 China’s first-quarter GDP maintained steady growth at 5.4% y/y, matching Q4’s pace and surpassing expectations. However, momentum into Q2 appears to be slowing as China’s Manufacturing Purchasing Managers’ Index (PMI) contracted in April, falling 1.5 points from the previous month.4
Indian equities extended their rally in April, gaining 4.82%. While manufacturing sentiment declined across Asia, India remained a bright spot with a robust manufacturing PMI reading of 58.2 in April (vs 58.1 in March).5 Services PMI was also still strong, improving 0.2pts m/m to 58.7 in April.6 The Reserve Bank of India (RBI) responded to global macroeconomic headwinds by cutting its key repo rate 25 basis points to 6% at its April meeting, shifting its stance from “neutral” to “accommodative”.
Korean equities rose 4.68% in April, buoyed by ongoing developments toward political stability and optimism over potential trade negotiations for Korea. However, underlying challenges persisted. Foreign investors continued their retreat, with net sales of KOSPI-listed stocks reaching USD 6.6 billion in April, marking the ninth consecutive month of outflows, primarily in technology shares. South Korea’s GDP contracted 0.1% y/y in Q1 2025, down from Q4 2024’s 1.2% growth and marking its first decline since Q4 2020. The economic slowdown reflected weakening domestic demand and exports, impacted by prolonged political uncertainty and deteriorating trade conditions.
In Taiwan, equities returned 2.44% in April, though primarily driven by TWD appreciation, as the TAIEX declined 2.2% for the month. Markets found support after the government tightened short-sale quotas to 3% of 30-day ADV (from 30%), and the government pledged support through its National Stabilization Fund. Taiwan’s Q1 2025 GDP growth surprised at 5.37% y/y (up from Q4’s 2.9%), driven by strong domestic demand and positive net exports. However, Manufacturing PMI fell 2.0 points to 47.8 in April, reflecting decreased output and new orders amid deteriorating global demand.
The ASEAN region performed well in April, with Thailand rising by 7.26% and the Philippines increasing by 5.53%. Singapore was the laggard within the region, though the market still grew 1.21%. Central banks in Thailand and the Philippines cut interest rates by 25 basis points, citing tariff risks to GDP growth and signaling further easing ahead. The Monetary Authority of Singapore (MAS) also eased its monetary policy by adjusting the Singapore dollar’s nominal effective exchange rate. Meanwhile, Indonesia and Malaysia kept their rates steady as currency stability outweighed growth for now. In Singapore, banks were affected since trade finance makes up a meaningful part of their credit exposure, though near-term concerns eased following the 90-day tariff suspension.
Market chaos is nothing new, as evidenced by multiple crises over the past three decades – from the Asian Financial Crisis in 1997 to the 2008 Global Financial Crisis, and the more recent 2020 COVID crash. Yet historically, periods of uncertainty have consistently unveiled compelling investment opportunities for those prepared to act. For us, the key to navigating uncertainty is controlling the controllables and honing our core investment skills. The focus remains on portfolio quality and risk-reward dynamics. While staying aware of macro factors is crucial, we cannot let them paralyze our investment process or distract us from fundamental analysis.
Against this backdrop, US-China trade tensions are obviously a key macro factor to monitor. Both sides have been engaged in a contest of pain thresholds, though signs point toward eventual de-escalation. For the US, market pressure, particularly if the S&P 500 drops below 4,800, the 10-year bond yields above 4.5%, or major retail stockouts occur, could force policy adjustments.
China’s pressure point lies in employment, with factory layoffs becoming increasingly concerning. These workforce reductions, especially affecting rural migrant workers, could trigger broader economic effects that push China toward the negotiation table. While headline tariffs may remain elevated for political messaging, we expect the effective average tariff rate to decline through various exemptions and carve-outs as both sides seek a workable compromise. As of May 12, this view has been validated with both sides announcing significant temporary tariff reductions – China lowering duties on US goods to 10% from 125% and the US reducing tariffs on Chinese imports to 30% from 145% for a 90-day period, suggesting a mutual desire to prevent complete economic decoupling.
China’s position appears more resilient than in the past. Years of deliberately diversifying trading relationships beyond the US, combined with its unique deflationary environment, provide Beijing with meaningful buffers. Even if headline tariffs settle around 40-50% on US-bound exports, we think China can leverage these advantages and deploy targeted stimulus to manage economic impacts. For other countries, the recent US-UK trade agreement, featuring a 10% baseline tariff with specific exemptions, establishes a template for other countries in their trade negotiations with the US.
From an investment perspective, we see both challenges and opportunities in this shifting landscape. US corporate profitability, currently near record highs, faces margin pressure as companies navigate nearshoring and supply chain reorganization initiatives. Apple, for instance, has maintained an impressive average gross margin of 42% over the past five years, but will likely see per-unit cost of production come under pressure while it shifts production toward India. This will also be true for other US consumer companies. So, we are mindful that we are not exposed to the part of corporate America that is getting squeezed.
Where we see opportunities relating to the US (and Europe for that matter) is on the investment side of their economies. As countries globally commit to modernizing infrastructure and upgrading to more efficient systems, we see particular promise in Asian companies that enable this transformation. Whether through providing automation solutions, power tools, or other critical equipment, leading Asian industrial companies are well-positioned to benefit from the expected increase in US and European investments.
Beyond supplying Western markets, Asia continues to generate compelling growth opportunities driven by local and regional demand. In ASEAN, digital platforms such as Sea and Grab have built comprehensive ecosystems that effectively address local market needs (see our note on Sea in our Q4 report). The healthcare sector presents another avenue for growth, with hospital operators expanding to meet rising demand for quality medical care, particularly in markets like India, where the sector is becoming more organized. We’re also seeing opportunities in pharmaceutical companies that are transitioning toward innovative drug development and specialized manufacturing capabilities.
While headlines focus on trade tensions and market volatility, we remain excited about the breadth of opportunities across Asia. These opportunities are backed by strong fundamentals and clear growth drivers that extend beyond near-term market noise. Our experience through multiple cycles has shown that periods of uncertainty often create attractive entry points for long-term investors and reinforces our conviction that patient capital will be well rewarded.
Over the past week, we’ve seen heightened tension between India and Pakistan – a result of India undertaking surgical strikes inside Pakistan to avenge for the terrorist attack in Pahalgam in late April. After a tense week, both parties have agreed to a ceasefire, realizing the grave consequences of a prolonged conflict across a densely populated region. We hope that pragmatism will prevail with both parties focusing on medium-term economic growth and development.
The Q1 2025 earnings season so far has been largely constructive across Asia, with most sectors demonstrating resilience despite ongoing trade uncertainties. While performance varies across sectors and regions, companies with exposure to AI infrastructure, premium consumption, and strategic diversification initiatives have generally outperformed, though mounting trade tensions could pose near-term challenges.
Tech sector earnings for Q1 2025 have been broadly positive across key subsectors. Memory manufacturers outperformed in strengthening pricing and demand pull-forward, while foundry and semiconductor design companies demonstrated resilience despite trade uncertainties. Hardware manufacturers benefited from continued AI infrastructure buildout and server demand. IT services providers showed mixed results, with growth moderating amid cautious enterprise spending. Despite ongoing headwinds from trade tensions and supply constraints, overall, the tech sector outlook remains constructive, with a key driver being robust AI-related demand.
Industrial and manufacturing companies posted robust Q1 results, driven by strong electronics, auto, robotics, and AI infrastructure demand. Pre-tariff restocking boosted sales, though global capex may pause pending trade policy clarity. Exporters are pivoting toward markets with greater policy certainty while maintaining focus on product innovation. The full impact of recent trade developments on earnings may take several months to materialize.
Consumer sector performance remains mixed across Asia. In China, intensifying competition in food delivery and e-commerce has pressured earnings expectations. Indian retailers showed strength across segments, particularly in jewelry and value retail, while quick service restaurant (QSR) players maintained positive same-store sales growth. ASEAN markets show varied performance, with Indonesia’s convenience store sector demonstrating steady growth, while Thailand faced some impacts from the recent earthquake. Bright spots include Vietnam’s modern trade expansion and Korean cosmetic original design manufacturers (ODMs).
Financial sector results were also mixed across the region. In India, large private banks demonstrated strength with expanding margins and stable asset quality, while public sector banks reported weaker performance. Non-bank financial companies, particularly vehicle financiers, continued to face high credit costs, though housing finance companies exceeded expectations. Regional banks saw momentum in wealth management, though they highlighted that market conditions remain uncertain. Many regional banks see opportunities emerging from corporate diversification trends and China+1 strategies, as companies seek to optimize their geographical presence.
Senior Investment Analyst, Marcus Chu, attended the recent Shanghai Auto Show and observed significant shifts in China’s automotive landscape. Of note, safety emerged as the dominant theme, with manufacturers showcasing notable advancements in smart driving capabilities, particularly in automated parking systems and Navigation on Autopilot (NOA) for both city and highway environments.
Competition remains intense among automakers, with aggressive pricing strategies being deployed to manage inventory and defend market share. The premium segment shows signs of weakness amid persistent deflationary pressures. Notably, several manufacturers adjusted their launch schedules following Xiaomi’s recent vehicle safety incident, highlighting the industry’s heightened sensitivity to safety concerns. With Chinese EV brands like BYD introducing new, feature-packed and luxury models, European original equipment manufacturers (OEMs) appear to be lagging in presenting competitive products for the Chinese market.
The components sector also remains interesting, driven by intense competition among OEMs. Chinese parts manufacturers are accelerating their innovation cycles, introducing new technology roadmaps to challenge traditional tier-1 suppliers. The rise of smart driving features has created opportunities for new components, such as Lidar systems and specialized chips. Significantly, international OEMs are showing increased willingness to collaborate with Chinese suppliers on parts and electronics design, marking a shift in global supply chain relationships.
The continued evolution of China’s auto industry suggests a market that is rapidly maturing in both technology and competitive dynamics, though challenges remain in premium segments and pricing stability.
For sophisticated investors only. For informational purposes only. The information presented in the material is not, and may not be relied on in any manner as legal, tax, investment, accounting or other advice or as an offer to sell or a solicitation of an offer to buy an interest in any investment product or any other entity sponsored or managed by Shikhara Investment Management. This material doesn’t constitute and should not be considered as any form of financial opinion or recommendation.
This material is prepared by Shikhara Investment Management LP (“Shikhara”). This material does not constitute an offer to sell or the solicitation of an offer to buy in any state of the United States or other U.S. or non-U.S. jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such state or jurisdiction.
Investment involves risk. Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the investment product will generate a return, and there may be circumstances where no return is generated. Investors could lose all or a substantial portion of any investment made. Before making any investment decision, investors should read the Private Placement Memorandum for details and the risk factors. Investors should ensure they fully understand the risks associated with the investment product and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Shikhara’s investment products are suitable only for sophisticated investors and require the financial ability and willingness to accept the high risks and lack of liquidity inherent in Shikhara’s investment products. Prospective investors must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the investment objectives of any given investment product will be achieved or that investors will receive a return of their investment.
Certain of the information contained in this material are statements of future expectations and other forward-looking statements. Views, opinions, and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements.
Certain information contained in this material is compiled from third-party sources. The information and any opinions contained in this document have been obtained from sources that Shikhara considers reliable, but Shikhara does not represent that such information and opinions are accurate or complete, and thus should not be relied upon as such. Furthermore, all opinions are current only as of the date of distribution and are subject to change without notice. Shikhara does not have any obligation to provide revised opinions in the event of changed circumstances. Whereas Shikhara has, to the best of its endeavor, ensured that such information is accurate, complete, and up-to-date, and has taken care in accurately reproducing the information, Shikhara takes no responsibility for the accidental publication of incorrect information, nor for investment decisions taken based on this material. Neither Shikhara nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein should be relied upon as a promise or representation as to past or future performance of any investment product or any other entity.
The MSCI AC Asia ex Japan Index captures large and mid-cap representation across Developed Markets (DM) countries (excluding Japan) and Emerging Markets (EM) countries in Asia. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI China Index captures large and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips, and foreign listings (e.g. ADRs). The index covers about 85% of the Chinese equity universe.
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This website is published exclusively for the purpose of providing general information about the management services carried out by Shikhara Investment Management LP, Shikhara Capital (Hong Kong) Private Limited and its affiliates (collectively “Shikhara Investment Management” or “Shikhara”). The information presented on the website is not, and may not be relied on in any manner as legal, tax, investment, accounting, or other advice or as an offer to sell or a solicitation of an offer to buy an interest in any investment product or any other entity sponsored or managed by Shikhara Investment Management. This website doesn’t constitute and should not be considered as any form of financial opinion or recommendation.
Shikhara Investment Management LP is currently an Exempt Reporting Adviser that is exempt from registration as an investment adviser with the U.S. Securities and Exchange Commission and Shikhara Capital (Hong Kong) Private Limited has been approved by the Hong Kong Securities and Futures Commission. This website does not constitute an offer to sell or the solicitation of an offer to buy in any state of the United States or other U.S. or non-U.S. jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such state or jurisdiction.
Investment involves risk. Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the investment product will generate a return and there may be circumstances where no return is generated. Investors could lose all or a substantial portion of any investment made. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the investment product and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Shikhara’s investment products are suitable only for sophisticated investors and require the financial ability and willingness to accept the high risks and lack of liquidity inherent in Shikhara’s investment products. Prospective investors must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the investment objectives of any given investment product will be achieved or that investors will receive a return of their investment.
Certain of the information contained in this website are statements of future expectations and other forward-looking statements. Views, opinions, and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance, or events may differ materially from those in such statements.
Certain information contained in this website is compiled from third-party sources. Whereas Shikhara Investment Management has, to the best of its endeavor, ensured that such information is accurate, complete, and up-to-date, and has taken care in accurately reproducing the information, Shikhara Investment Management takes no responsibility for the accidental publication of incorrect information, nor for investment decisions taken based on this website. Neither Shikhara Investment Management nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein should be relied upon as a promise or representation as to past or future performance of any investment product or any other entity.
The contents of this website are prepared and maintained by Shikhara Investment Management and has not been reviewed by the Securities and Exchange Commission of the United States or the Securities and Futures Commission of Hong Kong.
The Shikhara logo and name are trademarks of Shikhara Investment Management LP, registered in Hong Kong, the People’s Republic of China (PRC), Australia, the United Kingdom and the European Union and pending registration in the United States.