Expert Opinion: Trump 2.0 Impact on Emerging Markets?

John Ewart, Investment Manager of the Aubrey Global Emerging Markets Fund, offers his expert views on impact of second coming of President Trump on the emerging market investments, particularly in regions such as China and India.

“Hola amigos, estoy de vuelta!” There are few politicians that command immediate attention on the global stage, and facilitate a 24/7 dissection of their statements, policies, and demands. The incoming President Trump is certainly one of them.

Clearly the US political and financial landscape extends an influence on other regions of the world, but the GEM region did not stand still during the last two US presidential terms. And many companies that operate in their domestic economy or local region have few dealings with developed nations such as the US or in Europe.

Asia has continued to provide a dynamic economic and corporate environment, and intra-regional trade is now approaching 60% of the region’s total trade. Chinese companies in particular have built new capacity outside the country and assembled the final product elsewhere in the region to reduce the impact of international tariffs, but also to address increasing regional demand.

Emerging markets continue to provide excellent businesses, generating attractive financial returns, and managed by a new generation of entrepreneurs who are often the founders of their business. It is their leadership and execution that determines the future profitability and valuation of the company, rather than global political headlines. India’s Zomato, Singapore’s SEA Ltd, and China’s Trip.com are successful examples from 2024.

Government policy and support for the economy and business certainly support domestic investment plans, recruitment intentions, and consumer confidence, and the contrast between the grand plan of President Xi of China and Prime Minister Modi of India has again been evident last year.

The re-election of PM Modi in May with his coalition government encouraged investor expectations that the programmes of reform would continue, and the ‘Make in India’ initiative would attract further foreign investment. The new plant assembling Apple devices attracted headlines, but manufacturing facilities, electronics plants, IT services, and healthcare provision have all benefitted from international investment in recent years.

The debate on the Indian market has centred on the valuation and India does trade at a premium to the MSCI EM Index. This has been the case over the last decade. The Indian market has more than doubled since 2014 compared to the index return of 12%. Our focus is on companies and not the index, and the greater profit metrics generated by our portfolio’s Indian holdings, the more attractive growth outlook, supportive policies, and the compelling valuations merit their inclusion.

By contrast, China has traded at a discount to India for the last 10 years, but we would caution against the suggestion that China is ‘cheap’.

The Chinese government launched a stimulus plan in late September which certainly acted as a catalyst for investor buying, but the underlying challenges remain and confidence amongst the business community and consumers remains low.  The Chinese businesses that we prefer are in good financial health and do not require bank loans, but the change in policy from one of no action to being supportive is step in the right direction.

Recent incentives to support new car purchases and trading in older electrical appliances for new models has been positive, as is the demand for ‘experiences’ post Covid. This is evidenced by a healthy growth in travel with passenger numbers now regularly exceeding pre Covid levels. And let’s not forget that the Chinese consumer balance sheet would be the envy of many countries, with a savings rate exceeding 40%.

GEM offers more than India and China, and the technology heavy Taiwan and Korea indices have world leading players benefitting from broad industry demand. The new South African coalition Government has rekindled investor optimism with a business friendly mindset and pension reform.

The Trump campaign message played to the fears and aspirations of his followers. Our focus as investors is less on the fears on political headlines, but rather on the aspirations of consumers and business in the GEM region for the longer term, structural growth opportunity for 2025 and beyond.