Trump, Tariffs, and EM Assets: How Can Geopolitics Explain the Behavior of EM Equities?
Soon the world will get its first glimpse of Trump 2.0, and the issue of tariffs being threatened or applied as a way of securing concessions from trading partners will come into greater focus.
As it affects countries such as Canada and parts of Europe, we suspect much of the talk from the forthcoming president is more about bargaining strength, while significant and enduring tariffs on China is real.
Such measures will create spillover geopolitical risks, affecting a range of asset classes.
In this study published in the Journal of Emerging Market Finance, the authors carve out four ‘principal components’ of the ICRG and assess their impact on equity prices for 28 developed and emerging market countries from 2001 to 2015.
Among the findings: ICRG’s ‘Government Stability’ risk metric produces a negative hedge in the all-country sample. ‘Socio-economic conditions’ produces the highest positive hedge return. ‘Ethnic’ and ‘Religious Tensions’ contribute a positive hedge return of 5.6% p.a, of which 6.7% p.a. is related to emerging markets. A similar trend is detected for ‘Religious Tensions.’
Have a look.
Our data drives.
The PRS Group
PRS INSIGHTS
Moving beyond current opinions, a seasoned look into the most pressing issues affecting geopolitical risk today.
EXPLORE INSIGHTS SUBSCRIBE TO INSIGHTS