Emerging Markets

High unpredictability in U.S. trade policy and rising concerns over U.S. growth increase downside risks for emerging market (EM) economies. While more tariff announcements are expected in the coming weeks, the uncertainty alone is likely to dampen investment

The macroeconomic impact of U.S. tariffs on aluminum and steel imports starting March 12 on most economies is likely to be limited, although certain sectors and firms will be affected. Aluminum prices rose in February due to pre-tariff stockpiling; however, we expect the rise in prices to be temporary.

Reciprocal tariffs are expected to take effect on April 2. Asian EMs, with trade surpluses and wider tariff differentials with the U.S. face greater risk, while most of Latin America (LatAm) and EM Europe, the Middle East, and Africa (EMEA) are less exposed due to trade deficits and smaller tariff gaps.

Risky credits kept on refinancing their upcoming maturities, buoyed by tight spreads and anticipating potential future market turmoil, given ample U.S. policy uncertainty and the limited space for further monetary easing by local central banks. Rated maturity wall looks manageable, peaking in 2027 with $3.6 billion, mostly in LatAm.

Benchmark yields diverged as financial risk becomes idiosyncratic. Corporate spreads were relatively stable in the month contributing to solid--although decelerating bond issuance--mainly unrated. Market activity was strong in Saudi Arabia, Mexico, and Thailand, and anemic in Brazil. Trade tariffs, in the form of recent impositions and threats, represent the main source of downward risk for financing conditions.