Peter Wasko, Senior Portfolio Manager, Copia Capital
There’s no denying that global markets are facing considerable uncertainty at the moment. Trump’s ‘Liberation Day’ on 2 April sent shockwaves across the world, and although ongoing negotiations have brought some relief, at the time of writing, the universal 10% tariff on imports to the US remains in place, along with additional country- and sector-specific measures.
In general, tariffs aren’t good for markets. If high tariffs persist for an extended period, then it’s likely that global growth will suffer. That said, we expect that some markets will be more impacted than others.
Asian countries, in particular are facing significant proposed tariffs. At the time of writing, the announced tariffs were Vietnam 46%, Taiwan 32%, India 26% and China 30% – although these may change as trade talks progress. China’s rate has already dropped significantly from the eye-watering 145% rate proposed at the height of the tensions.
Given this backdrop, the outlook for emerging markets is complex. However, looking at the fundamentals, there are still several reasons for cautious optimism.
Limited reliance on US exports
China and India, which together make up around 40% to 50% of the MSCI Emerging Markets Index, are less reliant on US trade than you might expect. For instance, total exports account for approximately 20% of China’s GDP, but exports to the US represent less than 3%. This figure has decreased significantly in recent years, as China has actively sought to reduce its dependence on the US since their trade disputes previously escalated in 2018.
Similarly, India has seen considerable growth in exports over the past 25 years and exports now account for around a fifth of GDP. Yet exports to the US make up just over 2% of India’s GDP. In contrast, the European Union exports around 20% of GDP to the US, suggesting the impact of tariffs there would be far more pronounced.
Debt, valuations and growth prospects
Although emerging markets are generally seen as higher risk and more economically sensitive, in terms of fiscal strength, they are arguably more stable today than in the past. Many emerging markets countries avoiding significant increases in debt during the Covid-19 pandemic, so their debt-to-GDP rations remain relatively low compared to the US, Europe, the UK and Japan.
Valuations in emerging markets remain compelling, trading at a significant discount relative to developed markets.
And growth prospects remain positive, with India expected to grow by around 5% and China by 4%. Even in the event of a global slowdown, we believe many emerging markets countries will continue to outperform, as they are less reliant on global growth. For example, India’s robust domestic market, supported by favourable demographic trends like a growing middle-class, make it well placed for continued growth.
By comparison, the US (prior to the recent tariff developments) was forecast to grow by only 2%. While it’s too early to predict how Trump’s policies will play out, some analysts warn that they could weaken the economy, potentially leading to a US recession within the next 12 months.
Active management opportunities
Some countries and sectors will inevitably feel the impact of tariffs more acutely than others, but active managers have the flexibility to navigate this changeable environment and position their funds accordingly. For instance, by focussing on more in domestically-oriented companies to avoid the worst effects of tariffs. The broad and indiscriminate nature of the recent selloff has also created some attractive opportunities for active investors, with some stocks seeing price drops despite not being affected by tariffs at all.
While we remain cautiously optimistic, sustained high tariffs are a clear risk, potentially stifling growth across all markets. The key question now is: what happens next? Will blanket tariffs continue? Will reciprocal tariffs be reinstated after 90 days? How high will tariffs finish? At this point, it’s still too early to tell.
In the meantime, we continue to take a selective and strategic approach to navigating the uncertainty, capitalising on opportunities as they emerge.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
21st May 2025
Focus on Emerging Markets
Peter Wasko, Senior Portfolio Manager, Copia Capital
There’s no denying that global markets are facing considerable uncertainty at the moment. Trump’s ‘Liberation Day’ on 2 April sent shockwaves across the world, and although ongoing negotiations have brought some relief, at the time of writing, the universal 10% tariff on imports to the US remains in place, along with additional country- and sector-specific measures.
In general, tariffs aren’t good for markets. If high tariffs persist for an extended period, then it’s likely that global growth will suffer. That said, we expect that some markets will be more impacted than others.
Asian countries, in particular are facing significant proposed tariffs. At the time of writing, the announced tariffs were Vietnam 46%, Taiwan 32%, India 26% and China 30% – although these may change as trade talks progress. China’s rate has already dropped significantly from the eye-watering 145% rate proposed at the height of the tensions.
Given this backdrop, the outlook for emerging markets is complex. However, looking at the fundamentals, there are still several reasons for cautious optimism.
Limited reliance on US exports
China and India, which together make up around 40% to 50% of the MSCI Emerging Markets Index, are less reliant on US trade than you might expect. For instance, total exports account for approximately 20% of China’s GDP, but exports to the US represent less than 3%. This figure has decreased significantly in recent years, as China has actively sought to reduce its dependence on the US since their trade disputes previously escalated in 2018.
Similarly, India has seen considerable growth in exports over the past 25 years and exports now account for around a fifth of GDP. Yet exports to the US make up just over 2% of India’s GDP. In contrast, the European Union exports around 20% of GDP to the US, suggesting the impact of tariffs there would be far more pronounced.
Debt, valuations and growth prospects
Although emerging markets are generally seen as higher risk and more economically sensitive, in terms of fiscal strength, they are arguably more stable today than in the past. Many emerging markets countries avoiding significant increases in debt during the Covid-19 pandemic, so their debt-to-GDP rations remain relatively low compared to the US, Europe, the UK and Japan.
Valuations in emerging markets remain compelling, trading at a significant discount relative to developed markets.
And growth prospects remain positive, with India expected to grow by around 5% and China by 4%. Even in the event of a global slowdown, we believe many emerging markets countries will continue to outperform, as they are less reliant on global growth. For example, India’s robust domestic market, supported by favourable demographic trends like a growing middle-class, make it well placed for continued growth.
By comparison, the US (prior to the recent tariff developments) was forecast to grow by only 2%. While it’s too early to predict how Trump’s policies will play out, some analysts warn that they could weaken the economy, potentially leading to a US recession within the next 12 months.
Active management opportunities
Some countries and sectors will inevitably feel the impact of tariffs more acutely than others, but active managers have the flexibility to navigate this changeable environment and position their funds accordingly. For instance, by focussing on more in domestically-oriented companies to avoid the worst effects of tariffs. The broad and indiscriminate nature of the recent selloff has also created some attractive opportunities for active investors, with some stocks seeing price drops despite not being affected by tariffs at all.
While we remain cautiously optimistic, sustained high tariffs are a clear risk, potentially stifling growth across all markets. The key question now is: what happens next? Will blanket tariffs continue? Will reciprocal tariffs be reinstated after 90 days? How high will tariffs finish? At this point, it’s still too early to tell.
In the meantime, we continue to take a selective and strategic approach to navigating the uncertainty, capitalising on opportunities as they emerge.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.