Geopolitics and trade were always going to be an important theme for investors in Asia this year, and yet the scale of the Trump administration’s tariff plans shocked and whipsawed markets and triggered downward revisions to global economic growth expectations.
We aren’t feeling fearful. We have invested through many periods of volatility, and we remain confident that Asian equities will continue to offer good opportunities for income investors over the medium and long term. We think that in the short to medium term, any impact on earnings, and therefore dividends, for companies held in our strategy may be greater from a slowdown in global growth than from tariffs directly.
China has a real problem and is likely to be the biggest loser from the Trump administration trade policy, in our view. China faces tariffs of up to 145% from the US and has reciprocated with pernicious tariffs of its own on US imports. These duties are so high as to make China-US trade uneconomical, amounting to a trade embargo.
US and China decoupling
It’s difficult to say what comes next, and we note that the situation is very changeable. We appear to be heading for a de-coupling of the US and China, and this may be to the benefit of other Asian markets, as manufacturing capacity and trade shifts into their favour, in our opinion. It is worth noting that de-coupling did not begin with the Trump’s tariffs. For example, the Biden administration stopped the export of high-end semiconductor production equipment to China from the US, the Netherlands and Japan.
Japan, Vietnam and South Korea have expressed a willingness to negotiate with the US on tariffs. We think it possible that the Trump administration will sign trade agreements with a significant number of countries in the next three months and that tariff levels have more-or-less peaked and may well be cut -- i.e. less than 10% in some cases.
High tariffs between the US and China will remain for an extended period, in our view. It is possible that China will be forced to cut prices and dump electric cars, steel, and other manufactured goods overseas in order to keep its factories busy and sustain its economy.
Why we aren’t invested in China
For the last three years we haven’t allocated to China because we saw the one-party political system as being at odds with creating conditions for satisfactory shareholder returns, and we saw relations becoming more difficult with the US, Europe and some other Asian countries. High levels of debt, weak demographic trends and the difficult property market present additional challenges for China’s economy.
Another factor for us is China’s increasing aggression toward Taiwan. President Xi has set the People’s Liberation Army a goal of becoming a “modern military” by 2027, and US officials have suggested that China seeks to have the military capacity to invade Taiwan by 2027.1 This would be a catastrophe for both countries, for the region and for the global economy.
Of course, China remains part of regional and global stock benchmarks, and we note that many of the funds in our peer group have continued to invest in China.
Since the Trump administration tariff plans were announced in early April, Asian markets have been volatile – as have markets everywhere. We have not made significant changes in our holdings. We are high-conviction, long-term investors, and we believe it is important to have a well-diversified portfolio of investments, which can perform across a broad range of market scenarios.
A diverse mix of companies
This means a mix of growth stocks such as technology as well as stocks that are more domestic in focus and less correlated to the business cycle. We own a defence supplier and a precious metal mining company, for example.
Our equity income strategy is more heavily weighted than the benchmark in the technology sector, mostly through companies in Taiwan. We are overweight the developed markets of Australia and Singapore, where we see good opportunities. We also are overweight India, which we consider to be the most attractive emerging market in the world.
We look for companies that can capture growth in the region, but many are world leaders. We like firms which look after their balance sheets and have a willingness to share their profits with their owners. We like management teams and business models that have already been proven – reducing the need to speculate. And we like stocks which are liquid, so that if we do change our view, we can sell out easily.
We believe that Asia’s larger markets offer good liquidity as well as attractive potential dividend yields for discerning investors. A reasonable amount of diversification on a global as well as a sector level is important, in our view. While the short-term outlook for trade remains volatile and unpredictable, we see a compelling case for income investing in Asia over the medium and long term.
Sources
1Bloomberg News, as at 19 March, 2025
Strategy risks for Jupiter Asian Income:
- Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
- Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Emerging Markets Risk - Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
- Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Market Concentration Risk (Number of holdings) - The strategy holds a relatively small number of stocks and may therefore be more exposed to under-performance of a particular company or group of companies compared to a portfolio that invests in a greater number of stocks.
- Derivative Risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
- Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
- Counterparty Risk - the risk of losses due to the default of a counterparty e.g. on a derivatives contract or a custodian that is safeguarding the strategy’s assets.
- Charges from capital - Some or all of the strategy’s charges are taken from capital. Should there not be sufficient capital growth in the strategy this may cause capital erosion.
- Stock Connect Risk - Stock Connect is governed by regulations which are subject to change. Trading limitations and restrictions on foreign ownership may constrain the strategy’s ability to pursue its investment strategy.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Company or holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.