Emerging Markets Offer Safe Haven from Trump Tariffs: Swiss Analyst
- Swiss wealth manager Pictet upgrades Chinese equities while downgrading European stocks.
- China's 5.2% growth forecast outpaces U.S. slowdown as trade tensions rise.
- Gold maintains appeal as key hedge against increasing geopolitical risks.
In Pictet Asset Management's April barometer, titled "Emerging market assets offer refuge from Trump tariffs," Chief Strategist Luca Paolini argues that Trump's policies give emerging markets the upper hand as trade tensions escalate.
The Geneva, Switzerland-based wealth-management firm has upgraded Chinese equities to overweight from neutral, citing positive signals from the domestic economy that outweigh concerns about Trump's tariffs. Investors seeking exposure to this trend might consider the iShares MSCI China ETF (MCHI).
Meanwhile, European equities were downgraded to neutral from overweight following their strong rally. Pictet remained neutral on stocks, bonds and cash overall, but expressed a preference for emerging market bonds due to their growth prospects, solid global trade and attractive yields.
The firm also maintained a positive stance on gold as a hedge against geopolitical tensions. For investors seeking this exposure, the SPDR Gold Trust (GLD) provides a direct investment vehicle.
This strategic shift comes as U.S. growth is expected to slow to 2% in 2025, with businesses delaying investments due to trade policy uncertainty. In contrast, China's economy is projected to grow 5.2%, supported by strong industrial production, a stabilizing housing market, and ongoing fiscal and monetary stimulus.
As Trump's tariff policies create volatility in developed markets, investors may find better opportunities in emerging economies that face less direct impact and offer stronger growth potential, according to the Swiss firm's analysis.
Emerging Markets Gain Resilience Amid Trade Tensions
Emerging economies are projected to grow 4.3% in 2025, outpacing developed markets at 1.6%, according to the report. The iShares MSCI Emerging Markets ex China ETF (EMXC) offers exposure to these markets while excluding China for investors who want emerging market exposure with reduced Chinese concentration.
Pictet maintains overweight positions in several sectors expected to perform well despite trade tensions. Communication services remain attractive due to AI-driven growth potential, with the Communication Services Select Sector SPDR Fund (XLC) offering focused exposure.
Financials could benefit from strong earnings and possible Trump-led deregulation, the Pictet report said. Utilities round out Pictet's favored sectors, with the iShares U.S. Utilities ETF (IDU) providing exposure to companies that offer defensive characteristics combined with long-term electricity demand growth.
The report notes that Germany and the European Union's defense and infrastructure spending improve Europe's prospects, potentially offsetting some impacts from U.S. tariffs. However, the U.K. economy continues to struggle, likely prompting rate cuts from the Bank of England.
In fixed-income markets, emerging market debt presents strong opportunities. With supportive interest rates, widening growth differentials and improving global trade, Pictet has taken an overweight stance on local currency government debt and corporate bonds from these regions.
The implications of these trade tensions became evident in March when Trump's tariff policies triggered a selloff in U.S. equities, with the S&P 500 suffering its worst quarterly loss in three years. European stocks, however, outperformed the U.S. by a record margin, while emerging markets demonstrated resilience, benefiting from a weaker dollar.
