Are China tariff dangers priced in rising markets?

Investing.com — Escalating U.S.-China tensions may set off new tariffs, with EMs doubtlessly bearing the brunt fairly than China itself, in line with UBS.

Chinese language export costs have fallen 18% from their post-pandemic peak, whereas world export costs declined by solely 5%. This important disinflationary impact has bolstered China’s export competitiveness, with Chinese language export volumes rising 38% over the previous 5 years in comparison with a mere 3% globally.

UBS analysts recommend that new tariffs on China may deepen the export-driven strain on different rising economies fairly than China itself.

The market hasn’t absolutely priced within the dangers, UBS notes, emphasizing that EM fairness valuations stay 30% increased than throughout earlier U.S.-China commerce disputes regardless of weak returns on fairness.

The analysis additionally factors to vulnerabilities in tariff-sensitive industries like metal, autos, and transport infrastructure, which type a bigger share of EM fairness indices in comparison with developed markets. Moreover, a shift in U.S. commerce deficits away from China towards international locations like Mexico, Vietnam, and Taiwan may make EM equities much more uncovered to protectionist insurance policies.

Whereas some traders imagine these dangers are already mirrored in EM asset costs, UBS counters that optimism in earnings development projections and compressed credit score spreads recommend in any other case.