When export revenues are hit by tariffs, it's understandable that investors focus on firms that rely on domestic demand instead. The French banking group explains its reasoning.

BNP Paribas Exane, the cash equities business of BNP Paribas, says it is sticking with its preference in the near term for Asia’s domestically-focused economies, mindful that US tariffs hurt export revenues.

“As such, we continue to prefer China and India, and their higher quality domestically-orientated sub-industries, over the Northeast Asian markets (Japan, South Korea, and Taiwan),” William Bratton BNP Paribas Securities (Asia) Limited, said in a note yesterday. 

Private banks and wealth managers are wrestling with how to treat the Asia-Pacific region given that some of its economies have been hit – or could be hit – by tariffs enacted by the US Trump administration. While these tariffs are being challenged in the US courts for being an unwarranted use of presidential power, the possibility of such measures is arguably as serious a risk as the material fact of them. Several other wealth managers have explained how they view this issue for asset allocation, for example here and here.

Bratton said panellists and attendees at the BNP Paribas’s Global Markets APAC 2025 Conference in Hong Kong discussed such topics yesterday. 

“At the global scale, for example, there was much discussion on the relative strength of US global influence under the Trump administration and whether the global economy was moving towards a bipolar construct centred around the US and China, and their blocs, or a more multi-lateral, complex, and fluid, web of opportunistic relationships,” Bratton said. “A common theme was the idea that although the US would retain its global primacy in the medium-term, it was now a less dependable partner to Asia and Europe.”

“As such, it was suggested that countries in both regions needed to become more self-sufficient and/or develop new partnerships. China was seen as a potential beneficiary of this realignment given its industrial, economic, and financial influence, especially with the 'global south’.”

“Nevertheless, it was argued that the advanced (`western’) economies would remain more resilient than often perceived, especially if they made the necessary structural changes. This was seen as a particular priority for Europe, although, in turn, it was noted that the European Union would need substantive governance changes to improve its ability to respond to its current challenges,” Bratton continued. 

An important factor is the apparent “rebasing” of the China-India relationship after long-standing tensions between the countries, he said.

“To us, geopolitics are ultimately defined by economic geographies and from that perspective, we see Asia evolving towards a clear core/periphery structure with China evermore entrenched at the region’s core, both economically and politically. Simultaneously, we see the various non-Asian influences in the region (especially the US) becoming progressively weaker given the compounding influence of geography and economic gravity.

“This, we argue, will have long-term implications for the region’s financial markets. On the one hand, we believe 'western’ capital will play a diminishing role within the region as local (or 'Asian’) capital becomes more important. This is already a well-established theme within China and India, with all the subsequent challenges for foreign investors. But, on the other hand, we also believe that China’s increasingly entrenched status at the core of the Asian economic system will result in it offering disproportionately more attractive investment opportunities than available elsewhere in the region,” Bratton added.