The global trade war puts Asia in the crosshairs, but how exposed are UK investment trusts?
Asia has long been the growth engine of the global economy, but it is now firmly in the crosshairs of escalating US tariff policy.
As Washington’s trade sabre-rattling intensifies, UK-listed investment trusts with exposure to Asia are being put under the microscope by investors seeking clarity on just how vulnerable their holdings might be.
New research from Stifel, the broker, offers a deep dive into the country exposures of Asia-focused investment trusts. The findings are nuanced. No single fund stands out as particularly vulnerable, but some are more insulated than others. All are facing a climate of rising uncertainty.
China, tariffs and the ripple effect
The report notes that while China has borne the brunt of recent US tariff hikes. Import duties on some goods climbing to as much as 145%, the effects won’t stop at Beijing’s door.
As Stifel points out, Asia’s tight integration into global supply chains means countries like Vietnam, Taiwan and Thailand could also be hit hard, even if they are not directly targeted.
Vietnam, for instance, saw threatened US tariffs of 46%, Thailand 36% and Taiwan 32% in the run-up to the 90-day pause granted by the White House.
These numbers reflect the sizeable trade surpluses these economies run with the US. Even Australia and India, seen as more insulated due to lower dependency on US trade, are not immune to the second-order effects of slowing global growth.
Breaking down the trusts
Stifel reviewed a broad spectrum of Asia-focused funds, including generalists like Invesco Asia Dragon and JPMorgan Asia Growth & Income, small-cap specialists such as Fidelity Asian Values and Scottish Oriental Smaller Companies Trust, and income-focused portfolios like Henderson Far East Income and Schroder Oriental Income.
Country allocation varies considerably. China and Hong Kong represent 20% to 40% of most portfolios, while Taiwan typically accounts for another 10% to 20%.
In contrast, exposure to more vulnerable markets like Vietnam and Malaysia is limited, with the highest allocation to Vietnam just 6% in the abrdn Asia Focus fund.
Notably, India is a key overweight for Pacific Assets and Scottish Oriental, both of which are rated ‘positive’ by Stifel. These trusts may offer a relatively safer harbour thanks to India’s domestic-led growth model and limited direct exposure to US trade policy.
Finding shelter in income and diversification
The three income funds in the report—Henderson Far East Income, abrdn Asian Income and Schroder Oriental Income—tend to have greater weightings to Australia, again offering some insulation from trade volatility.
But they also face challenges: lower exposure to India means potentially missing out on growth there, while dividend sustainability could come under pressure if economic slowdowns weigh on earnings.
Interestingly, Stifel notes that discounts across these trusts have narrowed slightly from their 12-month averages, particularly among small-cap strategies. This suggests investors may already be positioning for volatility, or at least pricing in more resilient net asset value (NAV) performance.
Looking beyond borders
Crucially, this isn’t just about direct tariffs. As the report highlights, Asia’s economies are deeply embedded in global supply networks.
Slower US consumer demand or a pullback in industrial production in Europe can still dampen Asian earnings, even if headline tariffs aren’t aimed at them.
This global interdependence means fund managers are increasingly cautious. For instance, Fidelity Asian Values’ Nitin Bajaj is underweight both Taiwan and India, calling the former overvalued and likening current conditions to “gambling.”
That cautious tone reflects just how difficult it is to find real value amid swirling geopolitical currents.
The bottom line
Investors hoping for a clear “buy” or “sell” signal may be disappointed. As Stifel stresses, it’s not possible to draw hard conclusions at this point. The situation is still evolving, and the trade war’s long-term contours remain uncertain.
But what’s clear is that the best-positioned portfolios are those that are geographically diversified, skewed towards domestic demand, and equipped with managers who know when to step aside.
Asia may be in the eye of the storm, but for savvy investment trust holders, there are still plenty of ways to stay dry.