War, Tariffs, and Federal Reserve: Challenges for Emerging Markets in 2025

Emerging Markets Outlook for 2025

As the new year unfolds, emerging markets are poised to navigate a complex landscape marked by geopolitical tensions, trade tariffs, and monetary policy shifts from the Federal Reserve. According to VanEck, these 'WTF' risks—War, Tariffs, and the Fed—are at the forefront of concerns for investors and policymakers alike.

Geopolitical Tensions and Tariffs

The global economic environment remains fraught with challenges as geopolitical tensions persist. Trade tariffs continue to impact global supply chains and economic growth, posing additional risks for emerging economies that heavily rely on exports. These markets must adapt to rapidly changing trade policies that could affect their economic stability and growth prospects.

Federal Reserve's Policy Impact

Another critical factor influencing emerging markets is the Federal Reserve's monetary policy. As the Fed adjusts interest rates to manage inflation within the United States, emerging markets could face increased volatility. Higher U.S. interest rates typically lead to capital outflows from emerging markets, as investors seek higher returns in more stable environments.

Performance in 2024

Despite these looming challenges, emerging markets debt outperformed developed markets in 2024. This performance underscores the resilience of emerging economies, which have historically offered attractive returns amidst global uncertainties.

Investment Strategies Amidst Risks

Investors are advised to maintain a diversified portfolio to mitigate risks associated with active management, currency fluctuations, and geopolitical instability. VanEck emphasizes the importance of understanding the unique risks associated with emerging market investments, including political and economic factors, as well as regulatory differences.

For more detailed insights, visit the VanEck blog.