Trump-Driven Volatility Sends Asian Funds Searching for Shelter

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(Bloomberg) — Donald Trump’s punishing tariff salvos and frequent flip-flops are laying down a challenge to Asian fund managers: how to avoid any potential wipe-outs in a headline-driven market. 

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The US president’s plethora of announcements in his first three weeks in office, targeting nations as diverse as Canada, Mexico and China, have whipsawed financial assets from Treasuries to oil and Bitcoin. They’ve also made selecting investments based on long-term fundamentals something of a fool’s errand.

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Asian investors are responding to the volatility by seeking out assets offering relative protection from the swelling global trade frictions. Among these are DeepSeek-themed “hidden gems” in China, high-yielding stocks in Singapore and Australia, countries with upsized domestic markets, and India’s government bonds.

“Our playbook for Trump 2.0 was to buckle up for higher volatility, so investors should take less gross risk now than in 2024,” said Louis Luo, head of multi-asset investment solutions for Greater China at abrdn plc in Hong Kong. The infinite loop of “escalation, retaliation, negotiation and de-escalation,” will create a lot of noise and volatility, he said.

Here are some of the investments currently favored by Asian money managers and analysts:

DeepSeek Theme

One place to reduce exposure to Trump tariff headlines is seen in Chinese technology firms related to DeepSeek’s new artificial intelligence app.

The nation’s internet giants, such as Alibaba Group Holding Ltd., have touted their ability to build AI models of comparable capacity to their Western rivals, adding to their allure. The expected wider adoption of AI in China has helped software companies such as Beijing Kingsoft Office Software Inc. and 360 Security Technology Inc. jump almost 30% this year, putting them among the top 10 performers in the CSI 300 Index.

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A gauge of Chinese tech shares trading in Hong Kong entered a technical bull market Friday on the back of DeepSeek’s AI model, which had drawn bullish comments from analysts at firms such as Deutsche Bank AG and HSBC Holdings Plc.

Chinese stocks have proven to be a difficult trade in recent years but there are “a lot of hidden gems,” said Joanne Goh, senior investment strategist at DBS Bank Ltd. in Singapore “Because of DeepSeek, we see a lot more attention coming back to China’s technological prowess.”

Dividend Shares

Another area that’s tipped to provide a shelter from the current high volatility is in companies with a track record of high dividend payments. A gauge of such firms has returned 15% over the past year, beating the 12% gain from a broad basket of regional stocks.

“We like the following areas in the current volatility — Singapore and Australia as high yield, higher quality markets with more diversified trade,” said Sat Duhra, a portfolio manager at Janus Henderson Investors in Singapore.

Singapore’s benchmark stock index yields 4.9% based on estimated dividends for the next 12 months, while Australia’s yields 3.4%. Those compare with 2.5% for the broad MSCI Asia Pacific gauge.

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Duhra said he also favors higher-yielding Chinese state-owned enterprises as they are likely to be supported by Beijing’s directive to guide companies to increase shareholder returns. 

Domestic Giants

Money managers say another strategy to reduce the tariff risk is to put funds into countries with relatively large domestic markets and a correspondingly small reliance on exports.

India and Indonesia both have large internal markets and their “growth trajectories are less tied to the ebbs and flows of international trade, making them potentially more resilient,” said Manish Bhargava, chief executive officer at Straits Investment Management in Singapore.

India’s exports represented about 21.9% of gross domestic product in 2023, while Indonesia’s was 21.8%, according to data published by the World Bank. Those figures compare with about 29.3% for the world as a whole, and more than 170% for a trading hub such as Singapore.

India also offers “compelling opportunities” as the government is prioritizing infrastructure development, which presents a buffer against external trade dynamics, Straits Investment’s Bhargava said.

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Indian Bonds

India also provides another asset class that promises protection from the growing global trade disputes: government bonds.

The nation’s debt appears attractive over the medium term due the country’s strong economic fundamentals and alluring real yields, said Murray Collis, chief investment officer for fixed income, Asia ex-Japan, at Manulife Investment Management in Singapore. 

At the same time, the US is “less likely to implement tariffs on India given the smaller trade deficit of India compared with countries in the region,” he said.

India’s government bonds accessible to foreigners returned 6.8% last year, compared with a gain of 2% for emerging-market debt as a whole, according to data compiled by Bloomberg. 

—With assistance from Chiranjivi Chakraborty, Joanne Wong, Abhishek Vishnoi and Catherine Bosley.

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