This week seems to have been the grand finale of an eventful month for Western politics, culminating with the sudden withdrawal of Biden and the rise of Kamala Harris, which appears to have reinvigorated that contest. Biden’s exit followed an attempt on Trump’s life, the discord resulting from the French election, and the Labour Party ending 14 years of Conservative rule. As Andrew Courtney pointed out two weeks ago in his QD view – Spotlight on Democracy – around half the world’s population will be able to vote in national elections this year. This will almost certainly lead to volatility in financial markets all by itself, but with the Democrats in the US now offering a viable candidate, the biggest race just got a lot hotter, which could amplify market gyrations in the process.

This increased uncertainty has prompted us to examine country-specific investment trusts that can offer some respite from this political instability, specifically those with investment policies requiring them to invest solely in clearly defined regions or countries outside of the Western world. We believe that there may be opportunities in these markets that have gone unnoticed due to the intense focus on Western politics recently.

Here are four that we believe offer compelling opportunities: JPMorgan Japanese (JFJ), abrdn New India Investment Trust (ANII), Gulf Investment Fund (GIF), and Pacific Horizon Investment Trust (PHI).

JPMorgan Japanese

JPMorgan Japanese (JFJ) was previously the darling of the Japan sector, having generated stellar returns in 2020 (up 44% over the year) due to its focus on Japanese growth opportunities. Its portfolio is typically focused on companies that are part of the ‘new Japan’ and are capitalising on the waves of social and economic changes impacting the country.

Despite signs of renewed interest at the start of the year, the Japanese equity market has been impacted by rising global interest rates and, in tandem, a weakening yen. A weakening yen reduces the returns for all overseas investors but can be an additional headwind for Japanese growth stocks as the major exporters tend to be more mature and reside in the value camp. As a result, JFJ entered into double discount territory.

However, there are signs that the yen may be turning a corner, as it has begun to reverse its decline, having rallied over the month of July thanks in part to intervention by the Bank of Japan. Japan may also benefit indirectly from China’s domestic stimulus programme as Japan has become a major component of its supply chain and a favoured tourist destination. JFJ’s discount has started to narrow but it is not too late to look at Japan, it could have a lot further to run.

abrdn New India Investment Trust

India has been one of the standout regions in 2024, exemplifying the promised opportunities of emerging markets—superior demographics, underutilised labour pools, and the ability to tap into opportunities at an earlier stage when there is a longer growth runway, such as greater usage of financial services. The country continues to reap the benefits of structural reforms made by the Modi government, which have stimulated demand from both domestic and foreign investors, with the MSCI India returning 33% so far this year.

However, India’s recent general election, which concluded on June 1, saw Prime Minister Modi’s Bharatiya Janata Party (BJP) returned to power but with just 240 of the 543 available seats. This was 63 fewer than it commanded last time and, crucially, was below the threshold required for the BJP to retain its parliamentary majority. The results highlight that Indian politics can be quite unpredictable and gave way to a brief period of uncertainty. However, through a coalition vote, Modi was able to secure his third term as prime minister, bringing about a rapid reversal in India’s equity markets.

While the Indian sector has been able to generate strong NAV returns, the impact of the election has had a lingering effect on its discounts, with the entire sector trading on a negative z-score. The worst example is abrdn New India Investment Trust, which, despite having generated the highest one-year NAV total return of any Indian strategy (38.7%), trades on the widest discount, currently 19.5%, and has one of the widest z-scores of any trust we screened for. Given the growth potential of the region and the readiness with which a political compromise was reached, we believe the country can continue to make progress and has a good runway for growth ahead of it. Against this backdrop, the discounts in the sector look overdone, particularly ANII’s discount, which should narrow again as the market gains confidence.

Gulf Investment Fund

We need not remind readers of the ongoing turmoil in the Middle East, with the Gaza conflict weighing on investor confidence across the region. Since its outbreak in early October, investors have become increasingly concerned about the escalation of the conflict, which has now ignited conflicts in Yemen and threatens to drag Lebanon into war with Israel. This has led the Gulf region’s markets to effectively tread water over the last 12 months, with the S&P GCC Index up a mere 1.6%.

Markets in the Gulf Co-Operation Council (GCC) region had begun to falter at the end of 2022, due to a weakening oil price. However, the Gulf Investment Fund (GIF) largely avoided this impact by pivoting away from the region’s oil-sensitive stocks towards those benefiting from domestic trends, such as increasing tourism, government-backed projects, expanding social infrastructure, and banking participation. Its successful stock picking made GIF one of the best Gulf-focused strategies in the market, outperforming the majority of its peers, as we highlighted in our last note on the trust.

Yet even GIF could not avoid the fallout from the current conflict, with its discount widening to 13.1% as of today, having historically traded close to its NAV. This double-digit discount has given it one of the largest z-scores among those we screened. While the impact of the conflict on the demand for GIF is clear, demand for GIF may also have been affected by the departure of its previous manager, Jubin Jose, at the end of 2023. Jubin was replaced by his assistant portfolio manager, Bioy Joy, who seems to have hit the ground running, with GIF returning a 12-month NAV total return of 7.6%.

While signs of an enduring resolution to the conflict in Gaza could be a catalyst for a reversal in GIF’s widening discount – an outcome that becomes more likely if Kamala Harris were to take the presidency – GIF still has to contend with its small size (a market cap of £87m) and low free float (its two largest shareholders, City of London Investment Management and Qatar Insurance Company, hold approximately 85% of GIF’s shares between them). GIF offers a periodic tender conditional on it being able to continue with at least 38 million shares in circulation. With only 39 million in circulation, sufficient participation in the next tender could bring it below this threshold, precipitating discussions on its future.

Pacific Horizon

While the prior three strategies offer investors a way to capitalise on the benefits of irrational or narrowing discounts, this is not the primary case for Pacific Horizon Investment Trust (PHI). Rather than focusing on the opportunity presented by its discount, we have included PHI because we believe it is one of the better bellwether strategies for investors looking to tap into growth within the Asia Pacific region.

PHI has generated some of the best NAV returns among our screened funds over the last five years. It has also consistently outperformed its benchmark more than most other strategies on our list, as determined by its average 12-month batting average (a metric that calculates the amount of time PHI beat the Asia Pacific index, sampled weekly over the last five years). This, combined with metrics like its average alpha and information ratio over the last five years (two metrics commonly used to assess manager skill), gives us confidence in PHI’s managers’ ability to consistently add value, making it an attractive option for investors looking to tap into growth opportunities within the Asia Pacific region as a whole.

PHI also has the typical hallmarks of a Baillie Gifford strategy, with a strong bias toward high-growth companies. This means it could potentially benefit from any cuts in US interest rates, not only from a cost-of-capital perspective, but also because it may lead to a reversal in the dollar’s appreciation. Research shows that a strong dollar can hinder economic activity in the Asia Pacific region as it can distort domestic consumption and private investment. PHI should also benefit from China’s increasing domestic stimulus, with the CCP seeking to revitalise its faltering domestic economic activity. While PHI may not offer the same discount opportunity as the others on this list, it still has sufficient prospects to warrant a mention here.