Economy

Emerging markets slide amid Trump's tariff threats

Thursday 08 - 16:20

By: Dakir Madiha

Emerging markets slide amid Trump's tariff threats

Investors pulled back from emerging markets on Thursday, driving down stocks and currencies amid rising geopolitical tensions and fears of steep U.S. tariffs. The MSCI emerging markets index dropped between 0.7% and 0.8%, its sharpest decline since mid-December, as currencies in Thailand, South Korea, and South Africa led losses among developing economies.

The sell-off intensified after President Donald Trump backed a bipartisan bill that could impose tariffs of at least 500% on countries buying Russian oil, gas, or uranium. The legislation targets major importers including India, China, and Brazil. Senator Lindsey Graham, a co-author of the Sanctioning Russia Act of 2025, stated the measure would enable Trump to penalize nations purchasing discounted Russian energy that fuels Vladimir Putin's war efforts.

Uncertainty deepened with Trump's comments on Venezuela, where he suggested U.S. oversight could extend for years. Senior officials announced on Wednesday that Venezuelan oil sales and revenues would face indefinite U.S. control, with plans to manage 30 to 50 million barrels and reinvest proceeds for mutual benefit. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, described the situation as highly unusual, warning that direct U.S. intervention to oust a leader and seize natural resources represents a major escalation and raises concerns about potential targets like Colombia, Greenland, or Canada, regions Trump has eyed for their strategic assets or resources.

Asian markets bore the brunt of Thursday's declines, with Thailand's index falling 2% and Hong Kong's dropping 1.2%. Tensions escalated as China launched an antidumping probe into Japanese semiconductor chemical imports, specifically dichlorosilane, which Beijing claims was sold 31% below fair value from 2022 to 2024. Japanese chemical makers tumbled while Chinese rivals surged.

Indian benchmark indices extended losses for a fourth straight session, with the Sensex closing down 0.91% at 84,180.96 and the Nifty slipping 1% to 25,876.85. Foreign institutional investors offloaded shares worth nearly 1,528 crore rupees on January 7, pushing January's total outflows to $694 million. Trump has previously cautioned that Indian exports could face higher duties if New Delhi fails to address U.S. concerns over Russian oil purchases.

Emerging market bonds showed resilience despite equity weakness, posting their strongest annual start on record. Hungary raised 3 billion euros in eurobonds as planned for 2026, Turkey secured $3.5 billion in a two-tranche offering, and Poland joined the rush to capitalize on low borrowing costs. Investors now look to Friday's U.S. jobs data for clues on Federal Reserve policy, with analysts expecting rates to hold steady at the central bank's January 27 meeting.