Schroders Emerging Markets Lens April 2025: your go-to guide to emerging markets
Amid the trade tariff turmoil, how are EM assets faring?
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Our latest edition of the Schroders Emerging Markets Lens is now available.
Below is a summary of key developments in the equity and debt markets and you can find the links to both presentations here:
Emerging Markets Lens: Emerging Market Debt
Summary of emerging market equities:
- Liberation Day lurch: Trump’s reciprocal tariff announcements have led to significant market volatility in early Q2. Tariffs (ex-China now paused at 10% for 90 days) were more punitive than markets had anticipated, but the rules of the game are becoming clearer (slides 5-11). Read more: "Liberation Day": inflation up, growth down – with a huge dollop of uncertainty
- EM valuations: After market declines, as at 10 April, headline EM valuations are now close to or below the historical average. However, earnings downgrades may follow. At the individual market level, most EM are cheap versus their own history; India and Taiwan screen as somewhat expensive vs. history (slides 22-30).
- Relative valuation gap wide: The EM valuation gap to DM remains close to its widest level in 20 years on a 12-month forward price-earnings basis. EM is still 41% cheaper than the US on this basis (slides 28-30).
- Before the turmoil: In Q1, EM equities had their strongest start to a calendar year vs DM since 2017: +3% vs -1.7%. USD weakness was a tailwind (slides 14-20).
- What to watch: 1) The evolution of the global trade war – US actions and retaliation from other countries 2) Implications for growth and inflation in US and globally, and path of US dollar, 3) Broader geopolitics, notably the conflicts in Ukraine and the Middle East 4) The prospect of policy support in China.
Summary of emerging market debt:
President Trump’s announcement of “Liberation Day” tariffs has led to volatility in EM bonds and currencies in early Q2. Against this backdrop, hard and local debt have fallen back after a solid start to 2025.
Tariffs: Developments remain fluid. Ex-China, a 90 day pause leaves a 10% baseline tariff in place for other trade partners. For markets in key EMD indices, the initial reciprocal tariffs were highest on EM Asia and Africa – exposure varies by index at hard and local currency level (slides 5-6).
Hard currency emerging market debt (EMD):
- HC sovereign EMD has returned -0.5% and corporate 0.4% YTD as at 10 April (slide 9).
- HC sovereign and corporate spreads have widened in response to recent tariff news, with the sovereign high yield spread now above its historical average. (slides 15 and 21).
- Amid heightened uncertainty, the IG sub-indices have outperformed HY YTD, a contrast to the trend of recent years.
Local currency EMD:
- Local EMD has returned 3.9% YTD, as at 10 April, aided by currency appreciation, notably from EM Europe and Brazil.
- The average real yield premium of EM over DM remains above 3% (slide 36).
- There are EM currencies which appear undervalued in all three EM regions, though the degree varies significantly (slide 41).
Chart of the month:
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