With Donald Trump about to be sworn in as US president, markets in Asia are nervous about some of his policies, especially on trade. Investors who are alert to these policies’ likely limitations could find attractive opportunities.

Asia’s equity markets were among the worst hit after Trump’s victory in November. Having risen as much as 15% between January and October, the MSCI Asia ex Japan Index ended the year with a total return of just 5%, as investment flows swung back to the US.

They did so because Trump’s promise to use fiscal measures to stimulate the domestic economy was seen as a positive for US investors, while his plan to take a more protectionist stance on trade was considered a negative for exporting regions such as Asia.

We think the reaction is overdone, particularly with regard to the likely impact on Asia of a US crackdown on trade. Indeed, we see investment opportunities in Asia arising as a direct result of Trump’s policies, not all of which are likely to be totally effective.

ASIAN OUTLOOK REMAINS RESILIENT

Trump’s victory has in fact done little to change the fundamental outlook for Asian equities, in our view. We expect earnings growth—which has outpaced the rest of the world in the last two years—to stay solid. Commodity prices should continue to be relatively stable, and business margins should benefit from slightly higher inflation and a better alignment of supply and demand.

Still, Trump’s presidency will be something of a wild card. There are three different ways in which it could affect the region, in our view. Each has its own time frame—and some surprisingly positive aspects as well.

REGIONAL BANKS TO BENEFIT

The biggest impact in the short term is likely to be through reflation. Markets have quickly adjusted since the US election in anticipation of higher inflation, partly from Trump’s promise of fiscal measures, such as investment in infrastructure, to stimulate the domestic economy.

Markets and monetary authorities usually respond to rising inflation with higher interest rates. Investors are now increasingly expecting more rate hikes by the US Federal Reserve, which in December raised the fed funds rate—the second increase in 10 years.

This, of course, is a positive for banks and other financial institutions, in Asia and elsewhere—and is one area in which active value investors can benefit as a result of Trump’s policies. Our bottom-up research has identified several banks and insurers in Asia which are very attractively priced.