Emerging market (EM) equities have faced renewed pressure following the tariffs announcement from the US on April 2, when both the MSCI Emerging Markets and MSCI World indices dropped by as much as 11%. While EMs have since recovered some ground, they remain vulnerable due to their historical sensitivity to US equity movements, points out Lombard Odier.
Adding to the uncertainty is the weakening of the US dollar, which in normal times would support flows into EM equities, but this time reflects broader risk aversion linked to the “US’s erratic trade policy”, the asset manager opines.
“There may be opportunities in emerging market equities once the uncertainty settles. Potential structural shifts, such as a lower US trade deficit and any erosion of trust in US institutions could lower demand for US assets and drive capital into emerging equities,” opines Patrick Kellenberger, Emerging Market Equities Strategist at Lombard Odier.
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