Investing.com — Escalating US-China tensions could trigger new tariffs, with EMs potentially bearing the brunt rather than China itself, according to UBS.
China’s export prices are down 18% from their post-pandemic peak, while global export prices are down just 5%. This significant disinflationary effect has strengthened China’s export competitiveness, with the volume of Chinese exports growing by 38% over the past five years compared to just 3% globally.
UBS analysts suggest the new tariffs on China could deepen export-driven pressure on other emerging economies rather than China itself.
The market has not fully priced in the risks, UBS notes, noting that EM equity valuations remain 30% higher than during previous US-China trade disputes despite weak capital returns.
The research also points to vulnerabilities in tariff-sensitive industries such as steel, autos and transport infrastructure, which make up a larger share of EM equity indices compared to developed markets. Furthermore, a shift in the US trade deficit away from China and towards countries like Mexico, Vietnam and Taiwan could make EM stocks even more exposed to protectionist policies.
While some investors believe that these risks are already being reflected in EM asset prices, UBS counters that optimism in earnings growth projections and reduced credit margins suggest otherwise.
