As investors reflect on their portfolios ahead of President Trump’s announcement regarding trade tariffs on April 2, concerns about emerging market stocks were understandably heightened. Countries recognized as emerging markets—such as China, India, Malaysia, and Indonesia—might have experienced negative impacts due to tariffs that typically strengthen the dollar, which can adversely affect smaller economies.

However, the current situation tells a different story. Since the beginning of the year, the MSCI Emerging Markets index, which monitors companies across 26 nations, has remained stable. Notably, stocks in China have appreciated by 6.5 percent, while India saw an increase of 0.5 percent, and Brazil surged by 11 percent.

In contrast, the MSCI USA index has dropped over 10 percent.

Several factors contribute to the surprising resilience of emerging markets. Firstly, Trump’s tariffs have led to a depreciation of the dollar, which is currently hovering near a three-year low. A weaker dollar benefits emerging markets significantly, as many rely on dollar-denominated debt. This lower value means cheaper borrowing costs, and profits generated in local currencies translate to more dollars, promoting overall economic growth in these regions.

Investing in Emerging Markets: A Growing Opportunity

The argument for investing in emerging markets is becoming increasingly compelling. Traditionally viewed as high-risk, high-reward prospects, these economies can yield significant growth but also face downturns.

For the past decade, American investors have primarily focused on the S&P 500, which has consistently outperformed other markets, showing a remarkable 147 percent rise over the last ten years despite recent fluctuations.

Most of the recent successful companies, such as Amazon, Nvidia, and Apple, are based in the US, leading to greater exposure for investors in American assets.

However, the recent discussions around Trump’s tariffs have prompted questions about the sustainability of this growth trajectory.

With fears of a potential recession in the US, there has been a simultaneous drop in US stocks, bonds, and the dollar.

As investors reassess the US market as a growth destination, many are beginning to look at alternative options.

Ed Monk from Fidelity noted, “Investors seemed to have overlooked emerging markets over the past decade due to the robust growth provided by the US economy and stock market.”

“But if we are nearing the end of that growth era—and while it’s uncertain, it’s a possibility—investors are now questioning where future growth will emerge, thereby highlighting the appeal of emerging markets, which inherently offer higher growth prospects.”

Monk further explained that while emerging markets have traditionally been associated with elevated governance and currency risks, similar risks are now evident within the US. He highlighted Trump’s attempts to influence Federal Reserve policy as indicative of these concerns.

Lena Tsymbaluk from Morningstar concurs, noting that “Trump’s tariffs have revived discussions about global supply chains and the risks associated with dependence on a single economy.”

She advises against fully committing to emerging markets but suggests maintaining a modest allocation for growth and as a safeguard against geopolitical risks.

Some emerging market nations may even stand to gain from changing global trade dynamics. Recently, US Vice President JD Vance engaged in discussions with India’s Prime Minister, focusing on trade negotiations.

Looking ahead, there appears to be substantial potential for returns. Tsymbaluk mentions that India’s economy is projected to sustain a growth rate of 6 to 7 percent, while Latin America has positively reacted to tariffs, facing a lower rate of 10 percent.

In terms of market valuations, the discount of emerging markets compared to developed markets currently sits at 34 percent, nearly peaking at a 20-year high. While it may not completely equalize, there is significant potential for narrowing this gap.