Emerging markets’ Trump rally at risk as tariffs kick in

The start of Donald Trump’s second presidency has matched his first term in proving a boon for emerging-market stocks, but the rally risks running out of steam given his trade and fiscal policies are also sinking corporate earnings.

The benchmark MSCI Emerging Markets Index has posted an advance every month from January through August this year, the first of Trump’s second term. That’s happened only twice before in the 37 years that investors have tracked emerging markets as an asset class: in 2017, also a Trump inaugural year, and in 1993, under Bill Clinton.

But the Trump bump hides a fact that should worry investors in emerging-markets stocks, who’ve seen their wealth increase by $4.3 trillion so far this year: companies in developing nations are hurting. They’ve failed to meet expectations for profits in 2025, and, on average, are trailing projections for a 13th successive quarter. Earnings projections have also begun to fall, indicating the pain is set to deepen.

The contrasting trends in stock-market performance and corporate earnings are both driven by Trump’s policies. His disruptive tariffs and fiscal expansionism have reduced the US dollar’s haven appeal, driving a hunt for alternative assets. At the same time, technology restrictions and trade barriers have eroded revenue and profit growth in developing countries from South Korea to Brazil.

“We stay cautious on emerging-market equities in a global context, as tariff-related risks continue to weigh more heavily on sentiment in EM,” said Nenad Dinic, an equity strategist at Bank Julius Baer. “Earnings-per-share estimates for 2025 flipped back to a downward trend after the 90-day tariff pause, reflecting concerns about tariff pressures building into the second half of the year.”

This year started with most emerging-market money managers bracing for a stronger dollar as they expected Trump’s tariffs to delay US monetary easing and drive more bids for the greenback. That translated into a weak outlook for developing-nation stocks, which typically do poorly when the dollar strengthens.But those assumptions were flipped on their head when Trump’s policies ended up pushing global investors to diversify, resulting in portfolio outflows from the US that weakened the dollar.