(Bloomberg) -- Emerging-markets assets gained on Tuesday after US President Donald Trump delayed new tariffs on goods from Mexico and Canada, and China delivered a relatively measured response to higher levies from the US.
The MSCI Emerging Markets Index was up 1.7%, the most since October, after the 25% levies announced on two US neighbors were pushed back by a month in return for tougher border controls. Markets across Asia gained strongly, after China announced targeted retaliatory moves — including higher tariffs on some US imports — which investors interpreted as an effort to avoid an escalation in tensions.
“Trump’s willingness to delay the implementation of tariffs illustrated that his administration remains open to further negotiations, which could act as a precedent for China,” said Matthew Peacock, investment analyst for EM Equities at Abrdn Investments Limited.
The offshore yuan held near a record low versus the dollar, but the full effect of the tariffs retaliation on Chinese markets will be clearer Wednesday, when they reopen after the Lunar New Year holiday.
Meanwhile, the calming of tensions pushed Bloomberg’s dollar index lower, allowing MSCI’s EM currency gauge to rise 0.3%, snapping a two-day run of losses. Asian currencies, including the Malaysian ringgit and Thai baht, led the gains but with Trump widely expected to turn his attention to Europe, investors remain on tenterhooks.
“It’s too early to declare with strong conviction that a full-scale trade war could be avoided. Over the next few weeks EM currencies are likely to be sensitive to any remarks from President Trump and his trade representatives,” said Piotr Matys, a senior analyst at inTouch Capital Markets.
The Turkish lira eased against the dollar, but finance minister Mehmet Simsek signaled it would continue strengthening in inflation-adjusted terms. Bringing down the inflation rate is “really the key,” he added.
On dollar bond markets, Egyptian debt posted some of the best gains among emerging markets as the nation secured $1.5 billion funding for oil and food security from the International Islamic Trade Finance Corp.
Ukraine dollar bonds are also among the top performers after Trump said his administration is looking to do a deal with Kyiv that includes access to rare-earth minerals.
In Europe, Romania tapped international capital markets for the first time this year on Monday, selling €2.8 billion in euro-denominated bonds and $1.25 billion in dollar debt.