Prologis: Expects emerging market policymakers to focus more on fiscal measures in response to Trump tariffs
Chris Kushlis, Chief Emerging Markets Macro Strategist at Platis, stated that in the face of Trump's tariff policies, emerging market policymakers are more likely to adopt fiscal measures to address the economic slowdown. Although most central banks have room to cut interest rates, fiscal support is expected to become the focus. The trends of emerging market currencies are unclear, influenced by multiple factors, particularly the economic slowdown and the pressure of central bank interest rate cuts. Specific sectors such as hardware technology and the automotive supply chain may face greater risks, while the financial and infrastructure sectors are relatively resilient. Market volatility will intensify, and credit performance will diverge
According to the Zhitong Finance APP, U.S. President Trump has implemented "reciprocal tariffs." Chris Kushlis, Chief Emerging Markets Macro Strategist at PIMCO, stated that the tariff measures are likely to have a negative growth impact on the local interest rate market. Although most central banks in emerging markets have some room for interest rate cuts to address growth concerns, it is expected that policymakers will focus more on fiscal support measures.
For emerging market currencies, the trend is relatively unclear. There are many factors influencing foreign exchange capital flows: on one hand, expectations of slowing economic growth and the tendency for central banks to cut interest rates create significant downward pressure; on the other hand, due to the U.S. threatening to respond with further tariffs to any retaliatory tariffs, countries may prefer to maintain short-term exchange rate stability while assessing negotiation space.
Regarding Asian corporate credit, PIMCO believes that U.S. dollar bond issuers will not be broadly affected. However, as different countries and economies are affected differently, the extent of impact on specific companies will vary.
For example, some issuers in the hardware technology, semiconductor, and automotive supply chain industries may face significant risk exposure to the U.S. market due to direct exports and/or end-user demand factors. Similarly, companies in cyclical industrial sectors (such as commodities, petrochemicals, and ports) may face operational pressure due to slowing economic growth, declining trade volumes, and rising uncertainty in capital expenditures.
On the other hand, PIMCO expects that issuers in the financial, utility, and infrastructure sectors are more likely to withstand related impacts. The pressure on foreign exchange in the region may indirectly affect corporate financial conditions; however, Asian companies tend to adopt a more conservative financing approach and have hedging policies in place. Additionally, the corporate fundamentals and balance sheet conditions of emerging market issuers remain robust, with ample financing channels. However, it is anticipated that market volatility will increase in the coming period, and credit performance will diverge, which will favor an active bond selection investment strategy