(Bloomberg) -- Emerging-market assets slid, with Latin American currencies reversing earlier gains as traders flocked to haven assets amid mounting fears that US trade levies may trigger an economic slowdown.
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A gauge of developing-nation currencies retreated as much as 0.3% on Monday, with Colombia, India and Korea all trailing peers. Mexico’s peso and Brazil’s real dropped at least 0.1% after rising at against the dollar. A companion index for equities fell 1.4%, led lower by companies with shares listed in Hong Kong. Meanwhile, treasuries rallied while the greenback advanced.
Investors are contending with signs that the US economy may suffer from Trump’s chaotic trade policy rollout, higher unemployment and federal-workforce cuts. Adding to the woes: China’s consumer inflation turned negative through January and February for the first time since 2021, widening the factory-gate deflation that is already sending the country toward the longest price contraction since the 1960s.
“The perception that these tariffs will slow down the American economy has become dominant, causing a movement of risk aversion and penalizing stock markets in a generalized way, also putting pressure on currencies around the world in a strong dollar movement,” said Gustavo Okuyama, a money manager at Porto Seguro Investimentos.
Latin America FX
Colombia’s peso was the worst performer among its emerging market peers, declining for a second session after Fitch Ratings downgraded the country’s outlook on Thursday.
Elsewhere, Mexico’s currency reversed its gains late Monday morning. Earlier in the session, the peso rose as much as 0.4% as investors wagered that Latin America’s second-largest economy may be able to skirt much of the impact of Trump’s tariffs.
President Claudia Sheinbaum expressed optimism that Trump’s team won’t impose reciprocal trade levies on her nation’s exports next month as tensions between the two simmer, bolstering some arguments that the country’s currency could gain in spite of a US slowdown and easing from central bankers.
Trump’s actions suggest that Mexico can gain more market share of US imports, according to Alvaro Vivanco, head of strategy at TJM FX. Adding to a scenario of continued peso strength, he added, are remittances to Mexico — a large source of inflows to the country — which have been counter-cyclical to Mexican growth, as in they tend to increase when growth is contracting.