Fund manager warning: Don't just focus on the rise! The "tariff crisis" in Asian stock markets has been underestimated.

Multiple large Asian fund institutions have warned that as Trump's tariff policy begins to erode corporate profits, the record-breaking rise of Asian stock markets will face increasing pressure. Institutions such as PIMCO, Franklin Templeton, and others have pointed out that the market has underestimated the impact of US tariffs on corporate profits - in the coming months, these tariffs are likely to curb exports. In their view, the stock markets of South Korea and Taiwan, which are highly dependent on exports, will be among the most vulnerable markets. Clarence Li, Senior Portfolio Analyst of the Hong Kong Stock Department of PIMCO, stated, "The current profitability and profit margins of export companies do not fully reflect the impact of recent tariff-related agreements. As part of our risk management strategy, our managed Asian and emerging market investment portfolios have reduced their holdings in companies highly dependent on external exports." Asian stock markets have performed strongly so far this year. By 2025, the MSCI Asia Index has accumulated a growth rate of over 20%, outperforming the S&P 500 Index by approximately 12% over the same period. Thanks to ample market liquidity, a weakening US dollar, and the momentum of artificial intelligence (AI), the benchmark index for Asia has already surpassed the historical high set in early 2021. The tariff regulations announced by the US in April mainly target economies with a trade surplus with the US (most of which are Asian countries). The current tariff rates are 34% for China, 50% for India, 19% for Indonesia, and 15% for Japan. Data from Bloomberg Intelligence shows that despite the significant increase in US tariffs, analysts expect profits of MSCI Emerging Markets Index component companies to only decrease by about 3% in 2025. Overly optimistic expectations BNP Paribas believes that the current market's expectations for corporate profits are overly optimistic. William Bratton, Head of Cash Equity Research for the Asia-Pacific region at the bank's Hong Kong office, stated, "We believe that the profit risks associated with tariffs have not yet been factored into expectations and valuation models for future corporate profits. We expect that there is still a risk of actual profits from Asian export companies falling below current expectations." Bratton noted that he is particularly cautious about the profit prospects of export-oriented industries in Northeast Asia (Japan, South Korea, and Taiwan). By source of export revenue, Asia is highly dependent on the US market. Data from the US Census Bureau shows that last year, the Asia region's exports to the US exceeded $1.3 trillion. Among them, China alone exported $438.9 billion to the US, Vietnam $136.6 billion, and South Korea $131.5 billion. Secondary factors of influence Christy Tan, Investment Strategist at Franklin Templeton in Singapore, stated that the risks to corporate profits are not limited to the immediate impact of tariffs but also include factors such as supply chain disruptions that may not directly reflect on the balance sheet in the short term. She said, "Investors are expected to remain cautious towards export-oriented and technology companies because in the coming months, the issue of profit margin compression for these companies may become more apparent." However, the Asian markets are not all doom and gloom, as there are potential positive factors that could offset the impact of tariff hikes. This includes market expectations of rate cuts by major central banks - it is widely expected that the Federal Reserve will resume its accommodative policy this week. Furthermore, as of now, Asian economic data has shown unexpected resilience to tariffs. Recent manufacturing activity data shows that from Thailand to Vietnam, business orders are growing; South Korea's exports remained stable in August, and Thailand's export value in July achieved double-digit growth. However, some fund managers believe that this phenomenon is due to companies ramping up their exports before tariffs take effect, and they expect that once this short-term effect fades, the impact of tariffs on the economy will become more pronounced. Fund institutions generally believe that the technology sector is one of the areas most at risk from tariff impacts - and this sector is one of the best-performing sectors in Asian stock markets this year. Jerry Goh, Director of Asian Equities at Aberdeen Standard Investments in Singapore, stated, "The market is concerned that the semiconductor industry may become a target of tariffs, given that Asia is the core of the global semiconductor supply chain. This measure may put pressure on the market in this region." He further pointed out that as Taiwan and South Korea are highly dependent on the semiconductor industry, companies in these regions will face the most severe profit risks.