Emerging market assets weighed down by Trump's blanket tariff threat

By Marcus Wong and Kerim Karakaya

  Emerging-market currencies and stocks fell after President Donald Trump signaled he is eyeing blanket tariffs of 15 per cent to 20 per cent on most of America’s trading partners. 

The MSCI index tracking developing-world currencies edged lower, with the South African rand and the Mexican peso leading the losses. The Bloomberg Asia Dollar Index is down 0.4 per cent this week, on track for its biggest weekly loss in six weeks. An index for EM equities also weakened. 

In his latest comments, Trump also threatened a 35 per cent tariff on some Canadian goods, adding to investor jitters. Still, some investors remained optimistic that the longer-term trends boosting developing economies will continue despite Friday’s retreat. 

“Emerging-market investors are used to uncertainty and weathering headline noise, so unless the trade negotiations between the US and EU break down we are comfortable with the macro situation,” said Anders Faergemann, portfolio manager at PineBridge Investments.  

Markets have been on the edge this week as the fresh tariff announcements appearead to undo earlier relief when Trump delayed the effective date for most US levies to Aug. 1 from July 9. Investors will be closely watching US inflation data due on Tuesday for any impact from tariffs, as well as that on the Federal Reserve’s policy trajectory.  

“Growing confidence the Fed can achieve a soft landing and resume its easing stance in September together with strong technicals have provided a boost to EM high yield,” Faergemann said. 

Elsewhere, Oman’s dollar bonds outperformed after the country received its second upgrade to investment grade in less than a year. Ukraine’s securities were also among top gainers as an international conference on the nation’s recovery plans concludes in Rome on Friday.