This is reported by RBK-Ukraine citing Bloomberg. The information comes from Kontrakty.UA.
Strategists at BofA, led by David Hauner, anticipate that the primary impact will be on the Chinese yuan, predicting it will drop to 7.6 per dollar in the first half of next year if the new U.S. administration imposes a 40% tariff on Chinese goods. A more substantial 60% tariff would mean the yuan could fall to 8 per dollar compared to the current level of around 7.24, they add.
This will affect other assets in emerging markets, Hauner noted. While currencies in developing countries may decline by 5%, lower oil prices could pressure high-yield sovereign debt, widening spreads by as much as 100 basis points, he forecasts. Similar to the trade war in 2018, "there will be a capital outflow from emerging markets and a higher risk premium."
"Markets are not only complacent about the size of tariffs but also about their side effects on global growth and the potential to trigger a hard landing," Hauner wrote, noting that new tariffs will take effect when economic activity is already much weaker than in 2018.
The MSCI index for emerging market currencies has weakened by about 1% since Trump returned to the White House amid fears of additional trade tariffs and signs of escalation in the Russian-Ukrainian war. Eastern European currencies have been hit the hardest.
If the trade war escalates, BofA believes there could be buying opportunities in some emerging market assets, anticipating a peak in the dollar in the first quarter. However, at this moment, strategists recommend buying the dollar against emerging market currencies, particularly against the yuan and South African rand. They also favor local bonds from Brazil, Hungary, Poland, and Turkey, but advise waiting for the dollar peak at the beginning of 2025.
It’s worth noting that the dollar has been rising against major global currencies for eight consecutive weeks. The euro has fallen against the dollar to a two-year low of 1.03 as Trump plans to implement tariffs on imported goods. Investors do not rule out the possibility that the euro/dollar rate could drop to parity.