EM stocks have come roaring back stronger

by Bailey Lipschultz

A month after President Donald Trump’s April 2 tariff offensive, some emerging market equities have come back stronger as the countries stay clear of the US-China dispute and governments strive to clinch a deal with Washington.

Equity benchmarks in India, Mexico, Brazil and South Korea have recouped all of their losses since the tariff shock and are among the best performers globally. Chinese and Hong Kong stocks have stumbled as a standoff between Washington and Beijing continues. US shares are yet to fully recover.  

In currencies, Trump’s policy whiplash has driven investors to havens like the Swiss franc, which has strengthened more than 6% versus the greenback since April 2. The euro has also fared well, with its gains bolstering emerging-market currencies in Central and Eastern Europe.   

Investors are turning their focus to potential winners from a new world order fashioned by Trump as markets return to a semblance of calm. Should the odds of a US recession grow, the pivot away from US equities and dollar-based assets may continue. The MSCI All Country World gauge excluding the US has surged more than 9% this year, while US benchmarks sit firmly in the red.

“Emerging-market equities stand to be beneficiaries of the US trade rebalancing,” said Michael O’Rourke, chief market strategist at JonesTrading. The asset class has benefited from “the US–China decoupling and there is tremendous room to grow that relationship if deals are struck with the Trump administration,” he said.  

Japan, India, and South Korea are among countries jockeying to get initial deals closed. Investors have also been quick to snap up equities from those nations, expecting bigger gains should agreements be reached in the coming weeks. 

Stocks in Hong Kong and China have lost their sheen after an early-2025 rally driven by AI optimism, as geopolitical tensions keep investors on edge. The Hang Seng China Enterprises Index has lost about 5% since April 2, trimming its year-to-date advance to 11%. 

While signs emerged that the Sino-American stalemate could break, the negotiation process will likely take months, if not longer. China said on Friday it’s assessing the possibility of trade talks with the US and urged officials in Washington to show “sincerity.”

“There appears to be no quick or clear path to de-escalation between China and the US at this time,” said Jeff Wilson, portfolio manager at Jensen Investment Management. “However, international markets sans China have a clearer path to resolution and de-escalation.”

In addition to its lure as an alternative destination to US assets, the euro has been rallying as investors expect the European Union to boost military spending after Washington cast doubt over its commitment to the bloc’s defense.

Still, years of gains in US equities mean some investors see the current underperformance as more of an anomaly. Indeed, the rebound in US stocks has been strong, with the S&P 500 climbing 12% from its April low. The benchmark posted an eight straight day of gains on Thursday, however, underwhelming results from Apple Inc. and Amazon.com Inc. overnight may pause that rally.

“We are currently positioned as overweight US and emerging markets, which screened as attractive areas even prior to the trade war and remain high in our country ranking,” said Josh Kutin, senior portfolio manager and head of multi-asset solutions for North America at Columbia Threadneedle Investments.

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