The writer is head of emerging markets cross-asset strategy at UBS
American exceptionalism dominates markets, with equities outperforming the rest of the world by 20 per cent last year alone. Yet one indicator, close to Donald Trump’s heart, remains exceptionally weak: the trade balance. We expect this to motivate new, China-centric tariffs. But rather than in China itself, we see larger market moves playing out in the rest of the emerging world for five reasons.
First, China is exporting its strongest disinflationary impulse in at least 30 years: its export prices are down 18 per cent from their post-Covid peak compared with a 5 per cent decline globally, according to our analysis of CPB World Trade Monitor data. This de facto real renminbi depreciation is helping exports dominate to a degree unseen since the early days of WTO accession. Chinese export volumes have risen 38 per cent over the past 5 years relative to a 3 per cent rise globally. This export surge is primarily being channelled into other emerging markets.