Investors Shift Focus To US Policy

Global investors are reevaluating their strategies following a month of economic shocks from the U.S., spurred by President Donald Trump's aggressive trade and budgetary policies. As volatility rattles Wall Street and undermines the dollar, traditionally riskier markets such as Latin American currencies and gold mining stocks have become surprisingly attractive safe havens. The instability has also disrupted European markets, which initially benefited from fleeing U.S. capital but are now struggling under the weight of a surging euro and fears of cheap Chinese imports.

The shift reflects growing disillusionment with developed markets. According to Shaniel Ramjee of Pictet Asset Management, volatility in emerging and developed markets is now converging. Ramjee has increased exposure to Brazilian local debt and mining equities in Australia and Canada, anticipating that emerging market stocks will outperform Europe as capital continues to exit the U.S. In parallel, Principal Asset Management’s Mike Goosay sees securitized debt, private credit, and emerging market bonds as more appealing than traditional safe havens like U.S. Treasuries.

Despite their usual vulnerability to global downturns, emerging markets have gained favor. A recent JPMorgan survey revealed that, after cash, emerging markets were the next preferred asset among global investors. Latin American currencies, for example, gained nearly 3% in April alone, with a year-to-date rise of 12%. Mexican equities also rebounded by almost 14% last month as traders bet the country might avoid further White House scrutiny.

Meanwhile, Europe’s appeal is fading. Deteriorating growth prospects and inflated equity valuations have investors concerned, with Bank of America predicting another 10% drop in European stocks following a 2% fall in April. Fidelity’s Ian Samson echoed these concerns, warning that U.S. assets would remain highly volatile, and European fundamentals were weakening.

In Asia, markets reacted unevenly to trade developments. Tokyo’s Nikkei rose after Trump eased certain auto tariffs, but Chinese and South Korean indices dipped due to falling export orders and weaker factory activity, reflecting the early impact of U.S. duties. U.S. stocks managed modest gains, buoyed by better-than-expected earnings from companies like Honeywell and Sherwin-Williams, but corporate confidence remains fragile. UPS, despite a solid quarter, announced 20,000 job cuts and held off updating its 2025 forecast due to economic uncertainty.

Looking ahead, investors face a wave of economic data, including eurozone inflation and GDP figures and the U.S. PCE index and Q1 GDP. Early indicators show U.S. trade deficits widening and consumer confidence slipping to a five-year low—both signs of mounting economic stress. Simultaneously, China's manufacturing slowdown is intensifying under the weight of U.S. tariffs.

With Trump’s trade policy direction still unclear, markets remain on edge. While there are tentative signs of negotiation, a lack of concrete progress continues to dampen sentiment. As traditional investment avenues falter, many investors are opting for flexibility and diversification, turning to emerging markets and alternative assets in hopes of weathering the uncertainty ahead.