Together with other wealth managers, Kunal Desai, portfolio manager of the Emerging Markets Active Engagement Fund at London-headquartered GIB Asset Management, shares his insights on the impact of US president Donald Trump’s sweeping tariffs on emerging markets and investment opportunities in the region.

Despite the severe impact last week on emerging markets from US president Donald Trump’s tariff announcement on imports to the US, Kunal Desai (pictured) at GIB Asset Management is quite optimistic about investment opportunities in the region, notably in China and India. 

US tariffs on China reached 54 per cent after the announcement, including earlier tariffs. In retaliation on Friday, Beijing imposed 34 per cent additional tariffs on all goods imported from the US, exacerbating a sell-off on global stock markets. The International Monetary Fund (IMF) warned that the escalating trade war was likely to hit global economic growth.

Last week, the US also imposed tariffs of 46 per cent on Vietnam's imports to the US, 30 per cent on South Africa, 26 per cent on India, 25 per cent on South Korea, 32 per cent on Taiwan and 10 per cent on Brazil. Asian stocks slid as result of the announcement, and European and US equity futures sold off. Countries such as China and Vietnam were hit particularly badly. As a share of their GDP, exports to the US are highest for Vietnam (25.1 per cent of GDP), Taiwan (14 per cent), Thailand (10.4 per cent) and Korea (6.8 per cent). By sector, electronics, machinery and textiles sectors are the most exposed. 

"The reciprocal tariff policy President Trump announced would impose a weighted average tariff rate of 18.3 per cent, 3 per cent higher than market expectations,” Desai said.  "It will be interesting to see if the most material fallout is within the US market, with international markets’ outperformance accelerating,” he continued.

“Within an emerging markets context, in the short term, manufacturing companies, especially those with operations in Southeast Asia like textile, auto parts, solar, will face greater pressure,” Desai added. “However, the Chinese A-share market, together with domestic demand-driven sectors like consumer, healthcare, real estate, financial and utilities, is likely to outperform the broad Hong Kong market.”

He believes that in relative terms, Chinese equities are still likely to outperform their peers within the Asia region. “The worst-case scenario for China in the "trade war 2.0" would involve two conditions: 1) the US imposing high additional tariffs exclusively on China, and 2) other countries following the US in imposing additional tariffs on China. In the near term, neither of these conditions are likely to materialise," Desai said.

He believes that emerging markets are still quite well positioned to do well this year, and has recently increased his exposure to China, believing valuations to be attractive. He is also quite optimistic about the impact of the country’s recent stimulus measures and its focus on artificial intelligence (AI). "Chinese companies active in AI and the semiconductor industry continue to benefit from strong fundamentals and government backing against a backdrop of shifting investment appetite from AI infrastructure to AI application. Compared to US AI valuations, Chinese AI stocks currently trade at discounts of around 50 per cent to their US peers, making them particularly attractive," he added.

Mark Haefele, chief investment officer at UBS Global Wealth Management holds a neutral stance on China after the tariff announcement, recommending selectivity. Haefele favours Taiwan's structural growth market and defensive strategies centred on mainland China's state-owned enterprises. China is also likely to benefit from its recent more pro-business tilt, he said.

Desai has recently increased his exposure to South Korea and Brazil, which should benefit from AI, and reduced it for Taiwan and India.

However, he told this news service that he plans to increase his exposure to India in the next months, believing Indian firms to be more domestically orientated. The Indian market has been under pressure recently, but Desai believes that valuations are now attractive. "India’s strategic global positioning and economic power remain a key focus for the team and current market activity (including a 30 per cent fall in recent months) presents a prime investment opportunity point. US-India relations will be crucial to monitor in the coming years, given the strong US interest in India’s economic growth and potential new trade agreements," Desai said.   

Although India’s economy has been grappling with cyclical challenges due to reduced public spending, Carlos Casanova at Swiss private bank Union Bancaire Privée (UBP) also believes that the country is set to maintain its growth trajectory. Casanova is supporting a constructive outlook for 2025 and beyond.

The Indian government has also worked hard in recent weeks to negotiate tariff concessions with Trump. The US trade deficit with India currently stands at $46 billion and, according to reports, India is considering cutting tariffs on $23 billion of US imports, including gems, jewellery, pharmaceuticals and auto parts in order to bring down the 26 per cent tariffs, but no trade deal has yet been finalised.

In Nomura Asset Management's view, Vietnam's loss, which stands out as the most vulnerable to the tariff hikes, could be India's gain. The next round of supply-chain shifts is likely to benefit India the most, helped by its alliance with the US, and higher relative tariff rates on competitors such as Vietnam. 

GIB Emerging Markets Active Engagement Fund
Desai, Greg Konieczny and Marcin Lewczuk manage the GIB Emerging Markets Active Engagement Fund which has outperformed the MSCI Emerging Markets Net Total Return Index over the past six months.

GIB’s fund has exposure to China, India, Vietnam, Indonesia, Taiwan, South Korea and Brazil, where it is overweight. Top sectors include IT, consumer discretionary, healthcare and industrials.

Top 10 holdings include Shanghai-headquartered one-stop travel platform Trip.Com Group, South African internet firm Naspers, India’s Krishna Institute Of Medical Sciences, Taiwan Semiconductor Manufacturing (TSMC) and Shanghai-headquartered fast-food company Yum China.

Desai, who has over 10 years of experience in investing in emerging and frontier markets, was most recently a partner at Mobius Capital Partners. Prior to Mobius Capital Partners, he was the lead manager of the Neptune India Fund as head of Indian equities, and also served as a portfolio manager on the Neptune Global Emerging Markets Fund.