US election results and impact on Asia

I believe the knee-jerk reaction from markets is that a Trump 2.0 White House and potential Republican sweep would be good for the US economy and markets but less so for the rest of the world because of the new government’s proposed tax and trade policies.

US markets have already reacted favorably and reflect expectations for the new administration to enact further corporate tax cuts, deregulation and fiscal stimulus.

A constructive outlook on emerging market (EM) assets

Our Invesco 2025 investment outlook has a constructive view on EM assets, particularly for EM Asia. I am sticking with this optimistic view despite the recent development of the US election results.

I still believe that there remains a compelling case for Asian assets, especially in the longer-term. Asian economies are resilient, face less inflationary pressures and set to out-pace developed market (DM) growth in the coming year and their equity market valuations are much more attractive.

More so, China is set to unleash further fiscal and monetary stimulus, many Asian economies benefit from the AI investment theme and Asian central banks have started to ease monetary policies.

Ultimately, I believe that investors will care more about valuations and growth differentials rather than trade tensions.

Market may over-estimate the impact of Trump’s proposed tariff policies to Asia

Still, the main headwind to Asian markets in the near-term, is from Trump’s proposed tariff policy: 10-20% tariff to all imports to the US and 60% tariff on Chinese goods, which could come as soon as 1H 2025.

On the surface, an escalation of trade tensions and higher tariffs would lead to global growth underperforming and EM markets would likely suffer the brunt of it as their economies rely more on trade and less on domestic consumption.

Still, Trump’s current tariff proposal is likely the worst-case scenario and I believe that the new administration will hold off imposing these tariffs in order to win concessions, whether that may be more purchases of American soybeans or even geopolitical ones. 

Secondly, I believe that the market may be over-estimating the economic impact of Trump’s proposed tariff policies to the wider Asia region. 

Trade tensions have persisted over the past 7 years since the first trade war and many multinational corporations (MNCs) have used this time to diversify their supply chains.

For example, a 60% tariff on Chinese goods is likely to have less of an impact on China’s real GDP growth when compared back to the 2018-2019 trade war, which was a hit of around 1% to the Chinese economy.¹

America’s share in China’s total exports has fallen to 15% this year from 19% at the end of 2017.²

On the other hand, the 10% universal tariff is likely to have a bigger impact on corporate capex spending. This could lead to weaker global demand which could impact growth in the Asia region – I believe that this 10% universal tariff is the biggest risk to Asia markets in Trump’s proposed policy agenda.  

Outlook

Going forward, it’s very likely that we will see significantly more fiscal and monetary stimulus from China which could offset some of the trade headwinds.

All eyes are on what may emerge from China’s policy toolkit after the conclusion of the NPC standing committee meeting on 8th November.

While Trump’s re-election may bring near-term volatility to Asian markets, I believe that the China market outlook will be driven more by domestic developments rather than external ones and that north Asian markets will be anchored by the AI investment theme.

India and ASEAN markets are likely to fare better in the proposed tariff policy set-up. Within Asia, I continue to like Japan and India. 

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.