As we enter the last two months of 2024, the US election outcome – with Donald Trump securing a second term – has already set the stage for a transformative year ahead. This pivotal outcome brings fresh dynamics to global trade policies and macro landscapes, particularly impacting Asian and emerging markets, which we explore in this month’s report. Enjoy.
The MSCI All Country Asia Ex-Japan Index reversed some of its prior month gains, falling 4.43% (in USD terms1) over the month of October. Relative to the rest of the region, Taiwan was the only country to see positive returns, while Malaysia, India, and Korea were the worst performers. Sector-wise, in line with Taiwan’s outperformance, IT was the only positive-returning sector, while Consumer Staples and Energy were the worst performers.
MSCI China and Hong Kong consolidated lower in October after their September rally, declining 5.85% and 5.94%, respectively. Investors were disappointed earlier in the month when the National Development and Reform Commission (NDRC) press conference failed to announce more concrete stimulus measures. While NDRC officials highlighted economic progress and outlined plans to boost domestic demand and support private enterprises, they remained vague about the scale and timing of fiscal stimulus. Nevertheless, the policy pivot initiated in September appears to have generated some momentum. The official manufacturing Purchasing Managers’ Index (PMI) expanded to 50.1 in October (vs 49.8 in September), moving into expansionary territory for the first time in six months.2 The housing market also showed meaningful improvement, with the top 100 developers reporting a 7% y/y increase in sales revenue for October, compared to a 38% y/y decline in September.
MSCI India returned -7.64% in October, as sustained foreign investor selling and weak earnings reports contributed to negative market sentiment. Foreign institutional investors (FII) turned net sellers of Indian equities in October, leading to net outflows of USD 10.4 billion (vs net buy of USD 5.9 billion in September).3 Despite this, macro data points hint at a resilient economy. Goods and Services Tax (GST) collections rose to the second-highest monthly value of INR 1.87 trillion (~USD 22 billion) in October, with growth also improving to 8.9% y/y (vs. 6.5% in September).4 Manufacturing PMI rose to 57.5 in October after softening to an 8-month low of 56.5 in September, while services PMI also improved this month to 58.5 with a pickup in employment (vs 57.7 in September). 5
Korean equities extended their decline in October, returning -7.53% for the month. Foreigners net sold USD 3.4 billion worth of KOSPI-listed stocks in October, marking the third consecutive month of net selling activity.6 The tech sector bore the brunt of selling pressure amid disappointing corporate earnings. While Korea narrowly avoided a technical recession with Q3 GDP growing 0.1% q/q (following a 0.2% contraction in Q2), growth fell short of expectations at 1.5% y/y. The downside surprise came from a slight contraction in export growth, though IT exports continued to rise despite showing signs of deceleration.
Taiwan emerged as the sole bright spot among emerging markets (EM) in October, with equities gaining 3.73%. The market rallied on sustained AI-driven technology demand, particularly benefiting semiconductor manufacturers and tech suppliers. This tech sector strength was reflected in Taiwan’s robust Q3 GDP growth of 3.97% y/y, powered by an 8.04% y/y surge in exports.
ASEAN markets also felt the pull back in October, though Singapore and Thailand were a bit more defensive, with equities returning -3.33% and -3.91%, respectively. Malaysia emerged as the region’s weakest performer, with equities declining 8.04% under dual pressures from capital rotation into China/Hong Kong and climbing US yields. Regional sentiment was further dampened by pre-US election uncertainty and its potential implications for inflation and interest rate policies.
With the election outcome now confirmed, Donald Trump has secured a second term as President of the United States. This time, without the pressures of needing to seek reelection, Trump is positioned to pursue a more assertive agenda, raising critical questions for investors about the implications for Asian and emerging markets. But before we look abroad, it’s worth understanding the likely domestic policy trajectory in the US first.
Trump’s first term saw significant regulatory rollbacks across sectors, and we expect this trend to continue. Industry experts have indicated that 300+ executive orders may have been drafted during Trump’s first term focusing solely on deregulation, and these could be revisited once the new administration comes in.7
Deregulation measures in the oil sector are expected to result in lower energy prices, benefiting both consumers and businesses, particularly energy-intensive manufacturing in the US. In the financial sector, reduced regulations could boost business confidence and lending activities, further stimulating economic growth. While this pro-growth agenda of the Trump administration might spark near-term inflationary pressures, the combination of falling energy costs and productivity gains through deregulation and AI adoption should help moderate inflation over the medium term.
In healthcare, deregulation measures could lead to lower drug pricing and more streamlined drug approval processes. These changes present significant opportunities for Indian pharmaceutical companies, which dominate the global generic drug market, as faster approvals and reduced regulatory costs could accelerate their US market penetration while maintaining competitive pricing advantages.
On top of potential deregulation policies, Trump has pledged to extend the Tax Cuts and Jobs Act (TCJA) and implement further individual and corporate tax reductions. As he enters his second term in a stable, soft-landing environment, these tax cuts are designed to incentivize business investment and drive economic growth. However, a key concern is how the administration will finance these tax reductions. Without fiscal prudence, increased deficits could alarm bond markets, keeping yields high and potentially undermining the US’s pro-growth trajectory.
Looking toward Asia and emerging markets, the path ahead presents notable challenges. While US economic strength would typically be positive for the region, it may delay significant monetary easing, with Fed rates likely settling around 3.5% over the next year. As rates remain high, EM central banks will find it difficult to implement the interest rate cuts needed to accelerate growth without risking currency depreciation and capital outflows.
This puts EMs in an uncertainty corridor for the next 3-4 months as questions linger about US fiscal policy direction under Trump’s second term. Although Trump is scheduled to be inaugurated on January 20, 2025, work was already in progress from his prior term to assess various policies, particularly regarding taxes and tariffs. However, due to necessary legal processes, new tariffs are expected to take time before implementation, with the first set likely appearing around mid-2025.
Across EMs, we believe certain Asian countries are better positioned to outperform in this new environment. Aside from China, among the major EM trading partners with the US, Korean manufacturers stand out with their substantial US manufacturing footprint through companies like Samsung, LG, and Hyundai/Kia operating plants in states such as Texas, Tennessee, and Georgia. While Mexico holds the position as the US’s largest trading partner by value and benefits from nearshoring trends, its relatively limited manufacturing presence on US soil makes it vulnerable to a universal tariff. Additionally, anticipated downward pressure on oil prices is likely to weigh on Middle Eastern EM markets. Given these factors, we expect Asian markets to fare better than their EM peers.
Critically, we need to see how the tariffs will play out. While baseline tariffs for most countries could rise from 3% to as high as 10-20%, China faces potentially more severe measures. For context, during the 2018-19 trade war, effective tariffs on Chinese exports surged from 3% to 19%. Now, Trump has proposed 60% tariffs on Chinese imports. However, two key factors are worth noting when assessing the impact:
Despite dramatic figures of 60%, and even 100-200%, being thrown around, Trump’s dealmaking approach would view tariffs as a negotiation tactic to get the best possible “deal” for the US. A final agreement could involve alternative solutions, such as requiring Chinese automakers to establish US production facilities. For non-strategic sectors and consumer goods not manufactured domestically, tariffs might settle around 10-20%, while strategic sectors like defense, semiconductors, and automobiles, will be more heavily impacted.
Chinese companies have been diversifying their supply chains, reducing their vulnerability to US trade actions. Since Trump’s initial term, China’s export dependence on the US has declined notably, with US/Canada revenue exposure of Chinese listed companies falling from 5.7% in 2017 to 3.7% in 2024.8 Consequently, the economic impact on China may be less pronounced than the one percentage point growth reduction observed during 2018-2019.
The final effect on growth will also largely depend on China’s policy response. While the government initiated a policy pivot in September, we anticipate a measured, phased approach rather than any aggressive ‘bazooka-type’ stimulus. Given uncertainties around the upcoming US trade policies, Chinese policymakers are likely to exercise caution with additional stimulus measures this year. Near-term support may be limited to technical measures around debt, with more substantial initiatives deferred until early 2025. Today’s National People’s Congress (NPC) meeting on November 8 confirmed this, with the approval of an RMB 6 trillion increase in the local government debt ceiling. This move helps reduce near-term tail risks in the property sector and local government financing while preserving policy space for more substantial stimulus measures in 2025 if needed. If export performance deteriorates significantly next year, then policymakers may be compelled to implement more aggressive stimulus measures.
Beyond the immediate headlines, the greater opportunity in China is in the country’s domestic growth revival. Consumer confidence remains subdued, as evidenced by the underperformance of domestic consumption-focused companies and elevated household savings rates. The prospect of Trump’s presidency could further dampen local sentiment until concrete government support measures materialize. A robust consumer recovery will ultimately require more decisive policy intervention to boost confidence and spending.
For the rest of Asia, while initial 10% tariff increases would create headwinds, we believe that the potential acceleration of the “China +1” diversification trend could create an even greater opportunity. Countries like India, Vietnam, Thailand, and Malaysia have already emerged as beneficiaries of supply chain redistribution away from China. Thus, market corrections driven by the initial negative sentiment could offer attractive entry points for investors looking to capitalize on this ongoing structural shift.
In India, the country’s current market dynamics present a particularly interesting case. Recent excessive credit growth, especially in unsecured lending, requires a period of consolidation, and near-term growth may moderate. However, we anticipate improvement by Q2 or Q3 of 2025 on the back of revival in the government and the private sector capex. While Indian equity markets may remain range bound until such time, we maintain a positive outlook on US-exposed exporters, particularly Indian IT services companies. As corporate profitability improves globally, increased spending on IT software and customization services should benefit this sector, which should be largely insulated from traditional tariff measures.
In terms of positioning, we are focusing on companies positioned to benefit from sustained global growth. We’ve reduced some exposure to Chinese consumer stocks like Alibaba and Ctrip, and reallocated capital toward Indian IT services companies and resilient domestic demand plays like hospital providers across the Asian region.
On the exporters, the emphasis is on identifying businesses that can capitalize on improving US business confidence while minimizing tariff exposure. Key examples include Indian pharmaceutical and IT services companies, as well as manufacturers like Hyundai Electric with already established US production facilities. Companies with domestic US operations could be particularly well-positioned to benefit in this environment.
Meanwhile, certain exporters will also benefit from the accelerating China+1 trend. We see India emerging as a compelling destination, especially in areas such as electronics manufacturing services (EMS), auto components, and pharmaceutical contract manufacturing. Even with potential 10% tariffs, India’s manufacturing cost advantage remains substantial compared to developed markets. Thus, the impact of tariffs should be manageable as long as the demand flow remains sufficient, and this demand flow will likely come from China+1.
Overall, we believe this is a manageable outcome. While Asian markets may trade sideways for 4-5 months pending policy clarity, market pullbacks should present attractive entry opportunities. The US economy is expected to maintain its strength, and though Fed rate cuts may be limited to 100bps rather than 200bps as the central bank moves toward a neutral rate over the next year, the broader outlook remains constructive. Despite more modest interest rate tailwinds for emerging markets, we maintain our commitment to structurally sound economies like India and high-potential ASEAN markets that offer compelling long-term growth prospects.
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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.