Investors vote with their feet! Trump "destroys" the US stock market, emerging market stocks make a comeback and become the new favorite

The Zhitong Finance APP learned that emerging market stocks have risen, recovering losses incurred this year, as investors expect emerging markets to benefit from weakening confidence in the U.S. stock market. The MSCI Emerging Markets Index rose 1.7% on Wednesday, and the South Korean KOSPI index recovered losses caused by the U.S. imposing reciprocal tariffs. India became the first major market last week to erase losses triggered by tariffs.

Given that the U.S. stock market is still down 10% this year, the resilience of emerging market stocks is particularly notable. This divergence indicates that the "sell America" trade has gained attention after the erratic tariffs and other policies of the Trump administration harmed the U.S. economic outlook. After years of bullishness on the U.S. stock market, fund managers are adapting to a new market normal.

Emerging market stocks have outperformed U.S. stocks this year.

In the past week, emerging market currencies have also risen due to a weakening dollar. Driven by expectations of interest rate cuts and declining inflation, emerging market local currency bonds have had their best start relative to dollar-denominated bonds since 2022.

Jenny Zeng, Deputy Head of Fixed Income at Allianz Global Investors, stated: "Everything happening in the U.S. political landscape is prompting investors, especially foreign investors, to reassess the risk premium of U.S. assets. People are voting with their feet, reevaluating America's status, and prioritizing diversification."

Increasing signs indicate that global investors are seeking to exit the U.S. market. Janus Henderson Investors noted that clients may reduce their exposure to the U.S. market by 10%. Amundi reported that as clients withdraw from the U.S. market and flow into European funds, the company is experiencing a large-scale asset allocation adjustment.

On Wednesday, emerging markets were also boosted by a softening of U.S. President Trump's rhetoric towards China and the Federal Reserve. Trump stated that he has no intention of firing Federal Reserve Chairman Jerome Powell. Regarding the tariff issue with China, Trump mentioned that he plans to take a "very friendly" approach in any trade negotiations, and the U.S. will "significantly reduce" the 145% tariffs imposed on Chinese imports.

Although Trump's softened stance alleviated market tensions, it also reaffirmed that U.S. policies can shift according to Trump's whims.

The MSCI Emerging Markets Index has risen for the fifth consecutive trading day, and so far this year, the index has outperformed the S&P 500 by more than 10 percentage points