To me, the most beautiful word in the dictionary is tariff. It’s my favourite word.
— Donald J Trump
Emerging markets faced a significant hit on Wednesday as the US dollar strengthened sharply following Donald Trump’s return to the White House. This resurgence of the “Trump trade” pushed US Treasury yields higher and triggered broad sell-offs in emerging market currencies and stocks.
Eastern European currencies led the declines, pushing the MSCI Emerging Markets Currency Index toward its worst performance since February 2023. The Mexican peso, often seen as highly vulnerable to Trump’s trade policies, dropped up to 3.5% before paring some losses, closing about 0.3% lower.
Rajeev De Mello, CIO at Gama Asset Management, noted, “A Trump presidency will implement harsher and broader tariffs than during the last Trump administration,” with particular focus on China. Trump has suggested across-the-board tariffs of 10-20% on all imports, and up to 60% on Chinese imports. This outlook drove the MSCI Emerging Markets Equity Index down 0.7%.
Despite a generally bearish tone, certain high-yielding bonds, such as those from Ukraine and Argentina, showed gains amid expectations that Trump might push for peace talks in Ukraine, potentially easing geopolitical tensions.
Strategists warn that Trump’s tariff policies, combined with elevated US yields and a strong dollar, could continue to pressure emerging market assets. Ed Al-Hussainy of Columbia Threadneedle Investments highlighted that this election outcome “opens the door to a stronger US dollar, higher US real rates, and tariff policies that disproportionately damage EM exporters.”