Tariff Turmoil Hits Emerging Markets as Currencies, Stocks Face Global Headwinds

Tariff Turmoil Hits Emerging Markets as Currencies, Stocks Face Global Headwinds

Global emerging markets are under renewed pressure, as the tariff upheaval sparked by the Trump administration sends shockwaves through global asset classes. According to top global analysts, emerging-market (EM) currencies and equities are poised for further weakness amid intensifying trade tensions and macroeconomic uncertainty.

EM Currencies Under Pressure

Strategists at Societe Generale warn that most EM currencies are likely to decline, with particular vulnerabilities seen in South Africa’s rand, Latin American currencies, and even China’s yuan, which may undergo a "modest" depreciation.

“The wrecking ball is still swinging through EM FX, but the pace may slow,” wrote analysts led by Phoenix Kalen at Societe Generale.

 

Meanwhile, Goldman Sachs analysts expect that any weakening of the dollar would benefit developed market currencies more than those in emerging economies.

Investor Sentiment Weakens

Despite the MSCI Emerging Markets Currency Index closing the week at a five-month high, the mood among investors remains largely negative. Conversations with fund managers suggest a growing risk aversion as they brace for an escalation in trade tensions.

“Even without a worst-case scenario, the uncertainty alone is damaging investment sentiment,” said Tamas Cser, portfolio manager at Hold Alapkezelo Zrt in Budapest. “Global appetite for risk is clearly falling.”

 

Equity Sell-Off Deepens

Emerging market equities were not spared either. The MSCI Emerging Market Index fell 3.7% over the week, highlighting the volatility sweeping across global financial markets. Political instability in Turkey, Indonesia, and South Korea has only added to the caution among global investors.

Spotlight: Turkey’s Currency Woes

Turkey has emerged as a focal point of the crisis. Morgan Stanley recently downgraded its forecast for the Turkish lira, projecting a weaker currency by year-end. The bank also advised against carry trades in the current environment.

“US tariff-related risk-off sentiment likely drained another $10 billion from Turkey’s foreign-exchange reserves,” analysts including Hande Kucuk and Arnav Gupta noted.

 

They added that local demand for foreign currency would now be the critical factor influencing Turkey's FX reserves, as foreign positioning continues to weaken.

The Bigger Picture

This latest round of market jitters underscores the fragility of emerging markets in the face of geopolitical disruptions and economic nationalism. While central banks in some EM economies have taken steps to cushion the blow, the outlook remains uncertain as investors reassess risk across the board.

As the global economic landscape shifts, EM currencies and equities may continue facing pressure unless trade tensions ease and global liquidity conditions improve.

Conclusion: The fallout from ongoing tariff measures is becoming increasingly evident in the emerging markets space. With currencies weakening, stock indices sliding, and investor confidence shaken, the EM bloc faces an uphill battle — one that hinges on how quickly stability can return to the global trade order.