Emerging Markets Insights: All eyes on January 20

The inauguration of Donald Trump as the 47th president of the United States on January 20 is expected to have significant implications for emerging markets, particularly concerning trade and immigration policies. Potentially punitive tariffs on China and other markets like Mexico, South Korea, and Taiwan are anticipated, but the lack of readily available substitutes for US imports from these regions may mitigate some risks. China is expected to respond to aggressive US tariffs with substantial stimulus measures, although challenges such as deflation and weak consumer confidence persist. However, there is optimism that Chinese policy responses could limit negative impacts on corporate earnings.

The geopolitical landscape, particularly the Russia-Ukraine conflict, is another area of focus, with potential resolutions possibly easing sanctions on Russia. The energy market dynamics in Europe, particularly gas shipments via Ukraine, are critical, though elevated gas storage levels reduce immediate risks of price spikes. Emerging markets face volatility due to US tariff risks and political shifts, with China attempting to stabilize its economy through policy support and potential recovery signs expected in 2025.

Asian markets like Taiwan and South Korea, heavily reliant on technology exports, may withstand tariff impacts due to limited substitutes for their products. India, less coupled with the US, faces potential market corrections due to economic slowdown concerns, but positive corporate reports and favorable fund manager views offer some optimism for 2025. Brazil's digitalization across sectors presents growth opportunities despite macroeconomic challenges, while Mexico's exports face uncertainty from potential US tariffs, though its central bank's flexibility in interest rate adjustments could support domestic demand.

The external environment's low visibility and high volatility necessitate a focus on bottom-up stock selection, favoring companies with competitive advantages and adaptable management. The fourth quarter of 2024 saw a decline in emerging market equities, with mixed performance across regions. While the US Federal Reserve's measured rate guidance impacted sentiment, certain markets like the UAE showed positive growth. Inflation trends varied across Latin America, with Brazil's fiscal challenges and Mexico's wage policy impacting market dynamics.