Haven strategies for EM equities amid a trade war

Trump-proof corporate gems are located in China, Singapore, Brazil and India

April 22, 2025, 1:23 PM

Downtown Singapore with the container terminal in the background. The city is an ideal trade-war haven

Emerging market (EM) equities could well be the ultimate victims of Donald Trump’s trade war.

Draconian tariffs on China presage a protracted economic slump that could gut export growth from more than 100 developing countries for whom the $18 trillion Middle Kingdom economy is an existential economic lifeline.

Trump’s erratic tariff diktats have strangled trade flows, unnerved global capital markets and dampened consumer and business confidence, without which capex, stable payrolls and economic growth are simply not possible.

Volatility metrics on Wall Street have spiked since Trump’s “Liberation Day”, a phenomenon inversely correlated with EM valuations due to an exodus of offshore speculative capital flows from local money markets, from Istanbul to Sao Paulo and Budapest to Jakarta.

US recession risk is a macro sword of Damocles that haunts almost every major EM stock exchange on earth – as does an ominous new bear market in energy and industrial commodities, attested by the free fall in the price of Brent crude and Dr Copper.

Gold has accelerated to an all-time high of $3,390 an ounce. Auric’s spectacular bull market since 2022 is a harbinger of increased stagflation risk in the US and a more fragmented, unstable financial and geopolitical order.

The 7.5 percent return in the MSCI Emerging Market Index severely underperformed the S&P 500’s stellar 25 percent rise in 2024. Wall Street was mesmerised by AI tulip mania and the indices were hostage to Mag-7 concentration risk to an unprecedented degree.

EM, meanwhile, was akin to a Churchillian verdict of Clement Attlee: a modest asset class with much to be modest about.

Singapore is a magnet for foreign capital flows fleeing the US dollar ecosystem

However, the year of the Fire Snake or 2025 anno domini could well trigger a reversal of relative fortunes between Wall Street and EM for two critical reasons.

One, Wall Street is still expensive at 19-times forward earnings at a time when the macro outlook guarantees earnings per share growth deceleration and a hit to operating margins on the S&P 500 index.

Two, the MSCI EM index, in contrast, trades at an inexpensive 12.4 times earnings and offers a constellation of domestic companies whose growth prospects and business models are not held hostage by Trump’s tariff tantrums.

Trump-proof corporate gems are located in China, Singapore, Brazil and India. Their outperformance prospects could well echo the title of a Supertramp hit album – Crisis, What Crisis?

China is in the crosshairs of Trump’s punitive tariffs but fund managers find the PRC’s battered consumer staple sector an ideal tariff haven. Beijing has pivoted to Big Bang fiscal stimulus to boost public consumption, supplemented by $600 billion in PBOC monetary easing.

PBOC easy money rerates the shares of China’s money centre banks and property developers, a politburo policy objective. These sectors could thus outperform the Shanghai CSI 300, itself attractive at a modest 14-times valuation multiple. The world’s smart money is grossly underweight China at a time of epic fiscal and monetary stimulus.

Singapore is also an ideal Asian trade war haven. The little red dot at the bottom tip of the Malay peninsula has signed a free trade agreement (FTA) with Washington and is only subject to a 10 percent baseline tariff. The Singapore dollar is southeast Asia’s preeminent hard currency – an Asian Swiss franc.

Singapore has become the leading private wealth, project finance, investment banking and capital market hub for the Pacific Rim ever since Hong Kong reverted to the Dragon Empire in July 1997. The city state is thus a magnet for foreign capital flows fleeing the US dollar ecosystem and trading networks.

Singapore’s port and logistics infrastructure make the Lion City a natural beneficiary of Asia’s reconfigured supply chains after Trump’s tariff havoc. In Singapore, high dividend real estate trust S-REITs, banks and aerospace and defence, engineering, blue chips will continue to outperform the Straits Times Index (STI).

Or take Latin America. General de Gaulle dismissed Brazil as a country of tomorrow but I believe its Bovespa index discounts a far too dismal tomorrow at seven-times earnings, far below its 12-times median valuation in the past decade.

Brazil also boasts the world’s highest inflation-adjusted US dollar interest rates, now above 8 percent. This means the three Fed rate cuts priced into Chicago money market futures will be a steroid shot for the depressed valuations of Brazilian equities.

A nation with 30 percent of GDP devoted to agribusiness is a clear winner from Trump’s tariff-induced agflation and food supply shocks.

China, for one, has slashed its imports from the US farm belt and switched to Brazilian soybeans and meat exporters. Brazil is also the home of the world’s fastest growing digital bank, Nu Holdings, and Latin America’s flagship ecommerce platform MercadoLibre.

Massive offshore oil finds in the Santos Basin mean Brazil will become the world’s fifth largest oil producer by 2030, a Latino Kuwait. After its 20 percent plunge in 2024, the Brazilian real is now cheap at BRL5.80 to the US dollar.

The octogenarian socialist Lula could well be replaced by a centre-right, pro-US government in Brasilia, led by Eduado Bolsanaro. The samba drum beat in the market is unmistakeable. Fiesta time in the São Paulo Bourse in 2026? Absolutamente!

Matein Khalid is an investor in global financial markets and board adviser to leading family offices in the UAE and Saudi Arabia