Trade war tops emerging-market worries again as skepticism grows

The standoff between the U.S. and China is back at the top of emerging-market investor concerns as they assess how far they should price in a full-blown trade war.

Map of world's emerging markets.

(Bloomberg) – The standoff between the U.S. and China is back at the top of emerging-market investor concerns as they assess how far they should price in a full-blown trade war.

President Donald Trump weighed in on the state of trade negotiations with China, saying the U.S. was “right where we want to be” — namely, on the cusp of taking in massive tariffs from China.

On Saturday, he said it would be wise for China to “act now” to complete a trade deal with the U.S., after raising tariffs on $200 billion worth of Chinese goods and threatening more on Friday. The move prompted Beijing to say that it will be forced to retaliate with its own “countermeasures”.

Expected swings in developing-nation currencies, a barometer of investor nerves, rose last week by the most since August as markets see-sawed on each twist and turn in the standoff.

“We are increasingly skeptical that any meaningful agreement or even progress will be made in the near future,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd., which reduced its investments in emerging-market credit as tensions rose.

“Bonds have not really priced-in the complete collapse of U.S.-Sino trade talks.”

Central banks in Indonesia, Mexico and Poland are set to hold policy meetings this week, with all three forecast to keep interest rates on hold as the external volatility rises.