Comments from Aimee Truesdale, a PM on Martin Currie’s Global Emerging Markets Strategies (GEMS) team in Edinburgh, regarding the trade war.
- Overall, we continue to see risk that protectionist policies from the new US administration could lead to elevated inflation, higher interest rates and a stronger dollar. We think the recently announced tariffs on Canada, Mexico and China support this view. However, we caution there is lack of clarity on final outcomes, and there is still scope for things to change substantially from here.
- Specific to emerging markets, both China and Mexico produce a wide range of goods that are essential to US businesses and consumers, and we think that a certain proportion of trade will continue regardless. We have already seen the impact of previous trade tariffs on China, with the country’s export numbers remaining robust despite this headwind – US exports represent less than 3% of China’s GDP. Things will be more difficult for Mexico, which sends more than three quarters of its exports to the US, although we believe this impact will be short-term and long-term solutions will be found.
- We note that markets had already started to price in negative economic scenarios after the US election and we expect share prices to continue react on sentiment, while earnings impact to the majority of emerging market listed companies should remain limited.
