Trade threats, no Ukraine deal rattle emerging markets

Emerging markets were swept up in the global equities storm Friday, with a stock index seeing its biggest drop since August as investor concerns over US President Donald Trump's trade threats and the fading prospect of a Ukraine ceasefire put pressure on risk assets.

A gauge tracking developing-nation stocks plunged 2.4%, with Asian stocks taking the heaviest beating amid rising tensions between the world's two largest economies after China warned it would hit back against Trump's latest trade threats. A similar index for emerging currencies fell 0.3% as currencies from Hungary and Poland weakened after Trump's Friday meeting with Volodymyr Zelenskiy quickly devolved into a testy exchange.

The latest development came as EM investors were already grappling with uncertainty around Trump's trade policies and the Federal Reserve's rate path. The prospect of higher tariffs and sluggish global demand continues to weigh heavily on export-driven economies.


"The tariff threats and the selloff in US equities are weighing on EM," said Greg Lesko, a money manager with Deltec Asset Management in New York. "There was a rally in some EM assets going into Friday's Ukraine meeting, so markets were vulnerable to a selloff."

The indexes tracking developing-nation stocks and currencies both posted their biggest weekly drop since mid-November.

Trade-War Fears

Friday's turmoil follows Trump's announcement of further tariffs on China, along with plans for levies on imports from Mexico and Canada in the coming week. The additional duties on Chinese goods are stoking fears of an escalating trade war between the world's two biggest economies, while economists warn that the upcoming levies could push Mexico and Canada toward recession.

"Unfortunately, Trump pushing hard on tariff against China, Canada, Mexico and likely more to come, raises inflationary pressure in US and thus rates-higher-for-longer, thus we see the dollar spike," said Xin-Yao Ng, a fund manager at abrdn. That's "putting pressure on markets with more vulnerable currencies including several countries" in Asia like Indonesia.

The Bloomberg Dollar Spot Index has gained 0.9% this week, while a gauge of Asian currencies ended the worst week in more than three months.

Yearly Gain

Despite this week's slump, emerging-market stocks had the strongest start to the year since 2021, outpacing gains in US equities. The move underscores a shift in investor focus as recent US data pointed to slowing growth in the world's largest economy. Treasury yields dropped to their lowest levels of 2025 this week as traders priced in two quarter-point cuts by the Federal Reserve this year.

The Hang Seng Tech Index has climbed 25% so far this year, with optimism over artificial intelligence and Beijing's commitment to economic stimulus continuing to attract investors. Growing discontent with left-wing governments is helping fuel a rally in Latin America ranging from equities to currencies.