More Pain Ahead For Emerging Markets As Trade War Gets Hotter

The iShares MSCI Emerging Markets exchange-traded fund (EEM) is down more than 7 percent for the year as trade tensions between the world’s largest economies intesify.

Among the biggest decliners in emerging markets were Argentine, Turkish, Brazilian and Chinese shares.

  • Emerging markets could be headed for more declines this year — adding to already steep losses for 2018 — as trade tensions between the world’s largest economies increase and interest rates rise. The IShares MSCI Emerging Markets exchange-traded fund, which tracks emerging-market stocks, fell 8 percent in the first six months of the year and is still down more than 7 percent. Among the biggest decliners in emerging markets were Argentine, Turkish, Brazilian and Chinese shares.The sharp declines came as relations between the U.S. and some of its biggest trade partners soured and as central banks around the world started raising rates from a period of historic lows, setting up emerging markets for another wave of pain. This really resulted from the escalation in trade tensions on multiple fronts, This is also taking place against a backdrop of tighter monetary policy as central banks raise rates. A lot of emerging markets have seen export growth in the past year, which helps their economies. But that is dependent on increases in global trade. If you see lower world trade, the big EM exporters will be hurt.The U.S. unveiled on Tuesday a list of $200 billion in Chinese goods it is targeting for tariffs. The announcement came after the U.S. slapped tariffs on $34 billion of Chinese goods last week. The U.S. has also implemented tariffs on steel and aluminum imports from Mexico, Canada and the European Union. They have retaliated against those levies with tariffs of their own. Emerging-market equities fell nearly 2 percent on Wednesday after the U.S. released the list of possible new China goods tariffs.

    Rising trade tensions have kept investors in some of the largest financial markets on edge. The S&P 500 is up just 1.6 percent for the year. In Europe, the Stoxx 600 index has declined 0.8 percent. The Japanese Nikkei 225 index is also down more than 2 percent. These losses pale in comparison to the pain felt in emerging markets, however. Argentina’s Merval Index is down 8.3 percent in 2018, while Turkey’s ISE National 100 index has plummeted nearly 20 percent. In China, the Shanghai Composite is down 16 percent year to date. Brazil’s Bovespa Index was down as much as 8.6 percent before recovering some of those losses.

     

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