US Tariffs: How are Emerging Markets Managers Positioned?

On April 2, President Trump’s newly announced tariffs have far exceeded most expectations. For many regions, particularly emerging markets, the scale of the hikes was much larger than anticipated. 

Asian countries, in particular, have been disproportionately affected. China, one of the hardest-hit countries, will see a total tariff rate of 54% on Chinese imports. This includes imports from Hong Kong and Macau. In the continent, China was closely followed by Vietnam, Taiwan, Indonesia, and India.

Several industries are expected to bear the brunt of these tariffs, especially those heavily reliant on exports. The following graph shows a sharp decline in emerging market stocks after the US tariff announcement:

How are emerging markets managers positioned?
“Many emerging market portfolio managers view the situation as highly fluid, with significant uncertainty surrounding the outcome. Investors are closely monitoring for any potential bilateral negotiations between the Trump administration and the countries affected by the tariffs. Several options remain on the table, including direct retaliation – for example, China has already reciprocated – or the implementation of fiscal stimulus measures to support exporters. China will be the key one to keep an eye on.

“Even before the latest announcement, the risks associated with tariffs on China had been on investors’ radar for some time, leading several active managers to adjust their portfolios away from export-dependent sectors towards sectors more reliant on domestic demand, such as internet services, household goods and services. These sectors are considered less vulnerable to tariffs,” commented Lena Tsymbaluk, Associate Director, Equity Strategies at Morningstar.

What have emerging markets managers said? 

• The Gold-rated GQG Partners Emerging Markets fund, managed by Rajiv Jain, anticipates a slowdown in economic growth due to the impact of Trump’s new tariffs and trade policies. As a result, Jain has reduced exposure to high-growth stocks with relatively high valuations and is opting for companies with more defensive growth profiles and greater earnings certainty. While still focused on growth, Jain’s strategy emphasizes defensive growth. He believes China will be significantly affected by U.S. tariffs, which will impact trade dynamics, fiscal deficits, and overall economic growth. Consequently, the fund maintains a significant underweight in China (11.5% versus 30% in the Morningstar EM Target Market Exposure Index).
• Meanwhile, at Silver-rated Polar Capital Emerging Markets Stars, manager Jorry Nøddekær maintains an underweight position in China (26% versus 30%) and is highly selective with his exposure. He sees growth opportunities in specific sectors, particularly in China’s role in the emerging Multipolar World as a producer of consumer and capital goods. The fund also holds an overweight position in Latin America, as Nøddekær believes the region will experience minimal impact from Trump’s tariff policies.
• The Silver-rated JPM Emerging Markets team believes that now is not the time for hasty decisions, but they will reassess their portfolio if tariffs have a significant impact. The portfolio management team expects inflation in the US, mainly due to domestic companies being given the opportunity to match import prices. In their view, this could lead to higher inflation, slower growth, and potentially higher interest rates. They continue to focus on companies with sustainable competitive advantages, consistent cash flow, and strong management – a strategy they are confident is well-suited to current market conditions.
• Nick Price at the Silver-rated Fidelity Emerging Markets fund has concentrated the China exposure in consumer-facing sectors (sportswear, internet, and white goods), positioning the portfolio to benefit from potential further stimulus measures. The fund has adopted a modest exposure to exporters, with an active underweight in the manufacturing sector (autos), where companies are more exposed to increased tariffs. Additionally, the fund is overweight in Latin America, focusing on domestic businesses and consumer companies in Mexico, as well as domestic banks and fintech in Brazil, sectors that are largely insulated from tariff impacts.

The full report can be found here.