M&G's Calich: How vulnerable are emerging markets to trade wars?

Threats from Trump

Claudia Calich, manager of the M&G Emerging Markets Bond fund, analyses the potential effects of an escalation of the trade tensions between the US and China on emerging markets.

How vulnerable are EMs to trade wars? There are various channels that can be impacted by trade wars: imported goods may become more expensive; currencies of exporting countries may depreciate and investment decisions could be postponed until there is more clarity. Trade wars may also reduce consumption if the higher prices are not absorbed by firms. We could also see a tightening of financial conditions if foreign direct investment is reduced or if the risk premia on bonds or equities increases. All these factors could reduce economic activity. IMF warns world economy could be 'torn...