Global investors may be questioning US exceptionalism, which has attracted global capital to America over the last two decades.
This may or may not be a short-term trend as the Trump Administration redefines its trade policies and struggles to get the government deficit under control. But there are signs that some investors are looking to shift capital from the US into other regions, potentially benefitting Asia and Europe as the markets with sufficient liquidity to manage large capital flows without suffering destabilising side effects.
Investors based in Asia and Europe in particular may hold the view that they wish to repatriate some of their capital as concerns rise over the US debt level, its deficit and politics. This trend may partially explain the recent appreciation of Asian currencies against the US dollar. Taiwan’s dollar has been particularly strong. Singapore, Australia, Indonesia and India also have seen their currencies gain versus the greenback. Asian equities tend to perform quite well in a weak dollar environment.
Will Asia benefit?
Markets were volatile in April and May as investors reacted to the Trump Administration’s trade and tariff policies, with much of the focus on the US and China. Our optimism about the opportunities available for investors in Asia has not wavered and we have barely altered our positioning. We had expected geopolitics to impact markets this year. We are witnessing a realignment of global trade and investment, and we expect this may benefit Asia ex-China.
In the short term, we look forward to more clarity on trade agreements and expect Japan and South Korea to be amongst the first Asian countries in line for new terms with the US. Taiwan, India and Vietnam may be not too far behind. These countries have expressed a willingness to reach a deal with the US. Australia and Singapore have tariffs on their US exports of 10%, and we’re not expecting much change. It’s notable that the UK’s trade agreement with the US set a 10% rate.
Markets we like
As Asia equity income specialists, we like to invest in what we call quality income companies, and we see excellent opportunities in the technology sector, in particular, which steers us towards Taiwan. The other markets where we see the most potential are Australia, India and Singapore. We do not invest in mainland China stocks, and we think that China is likely to end up with the highest US tariff terms among Asian countries, possibly among any country.
The US and China are in the process of ‘de-coupling’ politically and economically. This is a longer-term trend that preceded the Trump tariff announcements in April. In fact, it accelerated under the Biden Administration, and the whole apparatus of the US government, Republicans and Democrats, are supportive, as are some US allies. For example, the US, the Netherlands and Japan agreed in 2023 to restrict exports of semiconductor manufacturing equipment to China, and in April, the US banned Nvidia from selling its H20 chips to China.
We are expecting a change of flows in capital and trade, including an acceleration in the shift of foreign direct investment away from China to other countries in the region as companies reconfigure their supply chains. India and Vietnam have so far been beneficiaries, but the Trump Administration is seeking to ‘reshore’ manufacturing to the US, so we will have to see if this materialises.
What companies are telling us
We regularly meet with companies, and the management we have spoken to recently have been fairly upbeat, even those exposed to tariffs. In many cases, these companies are selling products with very few competitors so that their customers do not have alternative suppliers to turn to. This is true of Asian technology companies who supply the US technology giants known as the Magnificent Seven (including Apple, Microsoft, Alphabet). The companies we speak to expect to largely pass on tariff costs to customers and ultimately to consumers.
Higher prices may impact demand but most companies we spoke with were optimistic about sales and earnings growth. An offset in recent months to the tariff uncertainty has been lower oil prices, which have lowered input costs for companies in a region that imports much of its energy.
We like to invest in quality companies with strong balance sheets that are able to push through short-term market gyrations. We believe that periods of market volatility - and we have seen many over the years - underscore the importance of having a diversified portfolio of investments which can perform in a broad range of scenarios. That means a mix of faster growing businesses such as technology firms and more defensive companies, including those that are more domestic in focus and less correlated to the business cycle.
We remain constructive because we continue to see good potential opportunities in Asia in an era where global trade and investment strategies are being redefined.
First published in the Hong Kong Economic Journal on 17 June 2025
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