Since President Trump won the US election, there has been a lot of second guessing as to how his Presidency will play out. Much of his rhetoric has been about “making America great again” via a protectionist agenda which includes withdrawing from trade treaties and implementing import tariffs on a variety of countries.
Unsurprisingly, this has been seen as a potential negative for the global economy and in particular, the Asian and Emerging Markets. I decided to meet the manager of a fund we are invested in, the Schroders Asian Income fund, managed by Richard Sennitt who has been investing in this region since 1993.
The basic message was that the headlines were proving to be a distraction from the fundamental outlook. Sentiment has weakened towards the region and we have seen capital outflows in the aftermath of President Trump winning the election. However, manufacturing data is improving after a sustained decline and producer prices are on the rise. This includes China, which is seeing its economy pick up momentum. Corporate revenue growth is accelerating and capital expenditure is coming down, showing an improvement in corporate discipline.
An example of this corporate discipline is expressed by Samsung in the fund. Despite well publicised issues with their new handsets, the fund has held on to this stock because the company has strong revenue growth from its other business activities. However, of particular interest is that Samsung have turned their attention to shareholder returns by increasing the amount of dividends they pay out. This has been well received and is unusual for a Korean company, which usually do not pay dividends!
Economic data is broadly surprising to the upside but due to the sentiment, valuations remain depressed and continue to offer good value for long term investors.
Given President Trump continues to be very active on his Twitter account, some patience may be needed here, but we expect the distractions to fall aside and make way for the strong fundamental story.
If you have any questions, I look forward to hearing from you.