Amid the uncertainties of President Donald Trump’s trade policies, investors are actively seeking opportunities within emerging markets. These strategies aim to mitigate potential fallout, particularly from trade tensions.
With a focus on areas less dependent on exports to the US, investors are exploring trades in regions like China and the Middle East. As Jillian Kandhari from Morgan Stanley Investment Management explains, the strategy involves finding dislocations in market prices. The artificial intelligence sector in China, for instance, remains a favorable investment, as it is less affected by tariffs. Investments in companies like Alibaba, which mainly cater to domestic markets rather than the US, have already shown significant returns this year.
The Middle East offers another protective option, according to Brendan McKenna from Wells Fargo Securities. Countries such as the United Arab Emirates, Saudi Arabia, and Qatar present stable currencies with government backing. The UAE’s stock market, buoyed by an influx of expatriates, exemplifies a haven for investments shielded from Trump’s policies. As Carl Tohme from Cheyne Capital points out, currency pegs to the dollar in these regions negate foreign exchange risks.
Morgan Stanley targets nations with limited export sensitivity and promising domestic credit cycles. Southeast Asia, parts of Europe, and specific Latin American countries are attractive due to their potential benefits from global trade shifts. Brazil is poised for growth, driven by internal factors, offering a buffer against Trump’s tariffs, unlike Mexico, which faces direct impacts from US trade policies.
Venezuela and Lebanon are witnessing a recovery in defaulted bonds, driven by restructuring hopes. In Turkey, the Turkish lira’s stability amid global volatility provides double-digit carry returns, making it appealing for investors. In South America, Colombia’s pro-business outlook has boosted its currency and stocks.
Despite the promising start to the year, recent sell-offs underscore the fragility of these markets. Charles Diebel from Mediolanum International Funds cautions that no investor is entirely insulated from the ongoing trade tensions, highlighting the critical observation of economic indicators to navigate these turbulent waters.
While emerging markets offer promising strategies to counter the effects of trade tensions, their inherent volatility requires careful consideration. Investors are advised to remain vigilant and adaptable as global dynamics continue to evolve.
