Emerging-market stocks rallied, erasing losses for the year, while currencies were mixed Wednesday as traders weighed the odds of a moderation in trade tensions between the world’s two largest economies.
An MSCI Inc. gauge for developing-nation equities rose for a fifth session, clocking its longest winning streak since February. The advance was led by gains in the technology and consumer discretionary sectors. Latin American stocks climbed 2.1% to close at the highest since November.
The resilience stands out as the S&P 500 Index remains more than 8% lower for the year, battered by US President Donald Trump’s flip-flops on tariffs. This week, Trump said he plans to be “very nice” to China and that levies will come down if an agreement is reached — boosting hopes for a trade deal.
But Wednesday’s gains lost steam after Treasury Secretary Scott Bessent said that Trump hasn’t offered to cut China tariffs on a unilateral basis.
“If Trump’s tariff policies and the shift in global trade become more permanent, in our view that would warrant further diversification,” said Anders Faergemann, co-head of EM global fixed income at Pinebridge Investments.
An index of emerging currencies rose less than 0.1%, with the Brazilian real among the best performers in a basket of peers tracked by Bloomberg.
To Brendan McKenna, a currency strategist at Wells Fargo in New York, there’s room for relative-value trades to do well, including betting that the Chilean peso will outperform the Colombian one. That’s because Chile is likely to hike interest rates in the second half of the year while Colombia grapples with “messy” fundamentals, he said.
“Opportunities to remove the dollar from the equation, at least for now, are more ideal,” said McKenna.
In local markets, domestic bonds have seen the best start to the year since 2022 against their dollar-denominated peers, as global trade turmoil boosts expectations for interest-rate cuts in developing nations and cools inflation by pushing down oil prices.
“Everything that’s happening in the political landscape in the US has prompted investors, particularly foreign investors, to reassess what should be the risk premium of US assets,” Jenny Zeng, deputy head of fixed income at Allianz Global Investors, said in a Bloomberg TV interview. “People are voting by feet saying, okay, now let’s reassess the status of the US and let’s diversify first.”
In a growing sign that global investors are looking to shift away from the US, Janus Henderson Investors said it sees a potential 10% reduction in clients’ exposure to the market. Amundi SA says it’s seeing a major reallocation as clients pull away from the US and pile into European funds.
Written by: Mpho Hlakudi and Vinicius Andrade — With assistance from Abhishek Vishnoi, Joanne Wong, Robert Brand, Hwee Ann Tan, Prima Wirayani, Winnie Hsu, David Ingles, Avril Hong, and Marcus Wong @Bloomberg
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