Investors are scouring emerging markets for Trump-proof bets
Srinivasan Sivabalan and Malavika Kaur Makol
6 min read
(Bloomberg) — From China’s artificial-intelligence successes to Dubai’s immigrant-led boom and rising prospects of debt restructuring in Venezuela and Lebanon, the winning emerging-market trades of 2025 all help investors withstand President Donald Trump’s trade agenda.
Such selective trades are protecting investors from the unpredictability of Trump’s second term because they aren’t reliant on exports to the US, interest-rate cuts or a weak dollar (DX=F).
While benchmark indexes across stocks, bonds and currencies in developing markets have had the best start in years, the end of February brought a selloff, triggered by yet another of Trump’s tariff threats. EM assets traded little changed Monday as European leaders scurried to craft a plan for saving Ukraine — after a public showdown between Trump and Ukrainian President Volodymyr Zelenskiy at the White House.
“Despite all this negativity, one needs to find dislocation in market prices that give opportunities,” said Jitania Kandhari, deputy CIO at Morgan Stanley Investment Management.
Those ideas come in different shapes. Take the artificial-intelligence rally. Last year, investors earned some of the biggest returns in emerging markets by chasing local companies that get a boost from the AI boom in the US. The 81% surge in Taiwan Semiconductor Manufacturing Co., which makes chips used in AI applications, is an example.
This year, investors are dumping TSMC (TSM) and buying Alibaba Group Holding (BABA), driving a 56% gain in the shares which accounted for more than two-thirds of the MSCI Emerging Markets Index’s advance in 2025.
Alibaba’s main appeal is that it focuses on China’s domestic AI adoption, not the spillover revenue from the US. That makes it a hedge against Trump’s tariffs as. China will continue to invest in the technology. Plus, the DeepSeek saga has underscored the country’s strengths independent of the US.
Playing With the Peg
For equity investors, a major risk is a stronger dollar that erodes returns earned in local currencies. That makes countries with stable currencies more compelling — especially if they have solid reserves to back up their pegs and dynamic growth stories.
“Many Middle East nations are interesting options,” said Brendan McKenna, an EM economist and FX strategist at Wells Fargo Securities (WFC) in New York. “The United Arab Emirates, Saudi Arabia and Qatar in particular can act as safe havens or locations for investors to deploy capital and be isolated from Trump risk.”
The benchmark index in Dubai rose to a record high in February as an influx of expatriates boosted demand for everything from houses to cars and banking services. Besides a currency peg, many companies also have government backing, which ensures their revenue streams.
“Because the dirham is pegged to the dollar, investors in the UAE stock market are not exposed to FX risk,” said Carl Tohme, a fund manager at Cheyne Capital. “This is an advantage in a highly fluid situation globally.”
Trade Shifts
Morgan Stanley IM focuses on economies with lower export sensitivity, a new domestic credit cycle, potential to benefit from global trade shifts, and standalone reform stories.
The asset manager’s favored targets are “companies and countries in South East Asia benefiting from the flow of capital and trade changes, pockets of eastern Europe, some oversold markets in Latam and some idiosyncratic frontier markets,” Kandhari said.
In Latin America, Brazil is emerging as an outperformer not only because of cheap valuations and prospects for rate hikes, but also because it is not Mexico — the country directly in the cross-hairs of Trump’s trade and foreign-policy assertions.
UBS Group AG is going long real versus the peso “to position for a divergence amidst real’s relative cheapness, carry and Brazil’s relatively low vulnerability to tariff risks vis-a-vis Mexico,” said Rohit Arora, EM strategist at the Swiss bank.
Standalone Stories
In Colombia, the prospect of a business- and reform-friendly government coming to power next year has taken the country’s currency and stocks to the top of the EM leader board. Most of Venezuela’s defaulted bonds have left the “20 cent club,” trading above that limit for the first time in years as restructuring hopes build.
Turkey’s policy of keeping the lira appreciating in inflation-adjusted terms has made the volatile currency unusually stable for global investors, allowing them to benefit from double-digit carry returns. The country, along with Argentina, are touted as major reform stories resilient in the face of trade threats.
For many investors, including UBS, local-currency bonds are becoming a favored asset class. Even as Trump’s tariffs may fuel US inflation and weigh on Federal Reserve easing, that won’t stop EM disinflation and rate cuts, they say. Those expectations have already spurred Bloomberg’s index for the asset class to the best start to a year since 2019.
“Selective investment in local-currency debt will tend to outperform,” said Marcelo Assalin, head of EM debt at William Blair. “The higher-yielding currencies like Brazil, Mexico, South Africa, Turkey will tend to outperform this year because they are very undervalued fundamentally and they offer much higher carry to investors.”
While the plethora of seemingly resilient investments have worked well in the first two months of the year, some investors caution against extrapolating the gains to the full year. On the last day of February, EM assets witnessed an across-the-board slump, highlighting how fragile these positions can be. to a tariff escalation.
“This is a storm that no one will be completely immune to,” said Charles Diebel, head of fixed income at Mediolanum International Funds.
What to Watch
Across several emerging markets, data on purchasing managers’ indexes and inflation will be released, giving insights into economic activity at the start of the year
Wednesday’s Caixin China PMIs, both services and composite, will be keenly watched, after a similar measure for manufacturing showed a faster expansion in February
Turkey’s policymakers will announce their interest-rate decision on Thursday. Economists expect a 250 basis-point cut to 42.5%
Turkey will follow this with a release on inflation expectations on Friday, which will give clues on whether the easing can continue
Hungary and South Africa will detail GDP figures Tuesday
Ukraine will announce a decision on its key rate on Thursday — as the country faces an uncertain path amid political rumblings over a peace process. Economies see a 100 basis-point hike to 15.5%
Mexico watchers will be looking out for the Central Bank Economist Survey on Monday, reserves data on Tuesday and inflation on Friday
