Emerging-Market Assets Drop as Dollar Gains on Trump Policy Optimism
TLDR
- Emerging-market assets decline as dollar strengthens under expectation of "America First" policies by Trump administration
- MSCI's emerging-market stock index drops 0.8%, experiencing longest losing streak in three weeks with $650 billion market cap wipeout
- Emerging-market currencies struggle at three-month low against dollar amid concerns of higher tariffs and limited fiscal stimulus efforts from China
Emerging-market assets declined Wednesday as the dollar strengthened on expectations that Donald Trump’s new administration will have support to implement "America First" policies.
MSCI’s emerging-market stock index dropped 0.8%, marking its longest losing streak in three weeks and wiping out $650 billion in market capitalization. Emerging-market currencies also hovered at a three-month low, pressured by the dollar’s surge to a two-year high against a basket of currencies.
The performance disparity between U.S. equities and emerging markets has grown, with Trump’s cabinet appointments indicating a focus on policies that could include higher tariffs, especially on China. Investors remain cautious due to China’s limited fiscal stimulus efforts, while China’s yuan slid to a three-month low against the dollar.
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Key Takeaways
The strengthening dollar and concerns over U.S. trade policies are weighing heavily on emerging-market assets. With Trump’s administration leaning toward protectionist policies, the outlook for emerging markets remains uncertain, particularly as currency volatility and inflation fears limit the flexibility of central banks. China and South Africa are both tapping dollar bond markets, indicating the importance of global funding sources amid economic pressures. Investors are watching closely for signs of more proactive economic measures from China to support the region, though emerging markets may remain under pressure until trade and tariff uncertainties ease.
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