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$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldInvestors are ditching emerging market stocks as they brace themselves for president-elect Donald Trump’s proposed trade tariffs and contend with a soaring US dollar and rising bond yields. MSCI’s emerging markets index, which tracks nearly $7.6tn in stocks across China, India, Brazil, South Africa and other markets, is down more than 10 per cent since hitting a two-and-a-half-year high on October 2. Developed market stocks are roughly flat over that period. Emerging markets have been hit by bets that inflationary policies such as tariffs and tax cuts under Trump, on top of an already buoyant economy, will force the Federal Reserve to keep interest rates elevated for much longer than previously anticipated. US government bond yields have shot higher in recent weeks as traders reassess their outlook for inflation. “It’s clear with US yields rising and the US dollar strength . . . this is definitely not an environment for emerging markets to perform,” said Emre Akcakmak, portfolio consultant at emerging markets fund manager East Capital, adding “the major markets that are accounting for two-thirds of the [MSCI] index are all under pressure”. Chinese stocks, which make up the largest share of the index, have dropped 15 per cent since October 2 on concerns about the health of the country’s economy. India and South Korea, two other emerging market heavyweights, have also sustained steep losses in recent months. Investors have pulled about $3bn from global emerging market equity funds so far this year, on top of $31bn in outflows last year, according to JPMorgan data. Longer periods of higher US rates and a strong dollar usually entice US investors to stay at home rather than take more risk investing abroad.Investors are now betting countries will try to weaken their own currencies and make their exports more competitive in response to US tariffs, a move that would depress emerging market dollar earnings. “There is a consensus case that protectionism gets worse and that America first is the only way,” said Archie Hart, emerging market equities portfolio manager at Ninety One. However, he added that markets had already priced in stormy trade relations for years. Some investors are positioning for a sell-off across emerging market assets in the first half of the year, followed by a rebound, in a bet that tariffs will be initially set higher than the Wall Street consensus, only to be reduced as Trump strikes deals with individual countries.“Right now, what we’re seeing is a very emotional, irrational reaction and so that has historically created buying opportunities,” said Kristina Hooper, chief global markets strategist at Invesco.However, other investors are still reluctant to jump back into emerging markets given this means a large underlying exposure to Chinese stocks, unless they screen them out of indices, which can overshadow moves in other countries.Those concerns were underlined last week when social media and gaming giant Tencent’s shares fell sharply after it was designated by the Pentagon as having alleged Chinese military links. The company makes up about 4 per cent of the MSCI index, or about the same as the benchmark’s entire weighting for Brazilian stocks.“China has just become, for many people, a bit of a pariah; it’s been uninvestable,” said Mark McCormick, head of foreign exchange and emerging markets strategy at TD Securities. More

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LONDON (Reuters) – British inflation figures will be closely watched on Wednesday as a sharp jump in government borrowing costs, concerns about domestic and global price pressures and a weak economy put growing pressure on finance minister Rachel Reeves.Economists polled by Reuters expect the annual rate of consumer price inflation to remain at 2.6% in December.That is above the 2.5% which the Bank of England forecast in early November. Last month – following higher than expected November inflation data – the BoE said it expected inflation to increase slightly further in the near term.Services inflation, which the BoE views as a key measure of underlying price pressures, is expected by economists to fall to 4.9% in December from 5.0% the month before.Markets on Tuesday were pricing in a 40-basis-point reduction in the BoE’s Bank Rate by December 2025 – effectively one quarter-point rate cut and a 60% chance of a second.The BoE in November said measures in Reeves’ Oct. 30 budget would likely add just under 0.5 percentage points to inflation at its peak between 2026 and 2027, causing inflation to take a year longer to return sustainably to its 2% target.Sanjay Raja, chief UK economist at Deutsche Bank (ETR:DBKGn), said he expected the 25 billion pound ($30 billion) hike in employers’ social security contributions and Britain’s minimum wage to “keep price momentum sticky” in the first half of 2025. A survey on Wednesday showed two-thirds of British retailers plan to raise prices this year in response to higher employer social security costs, adding to households’ high living costs.Investors are also bracing for inflationary pressures in the United States once Donald Trump begins his second term as president next week.British government borrowing costs have increased for seven consecutive sessions, pushing 10-year gilt yields to their highest since 2008.Asked about this rise and a fall in sterling, Reeves said there had been sharp market moves worldwide but Britain needed to stick consistently to new fiscal rules she had set out in October and grow the economy. Analysts say the jump in government yields has put Reeves at risk of breaching these rules when the government’s Office for Budget Responsibility updates its forecasts on March 26, leaving her with limited choices of more tax increases or spending cuts.Sam Cartwright, economist at French bank Societe Generale (OTC:SCGLY) said concerns about stagflation were greater for Britain than comparable economies.”A toxic combination of stagflation and debt sustainability concerns have resulted in UK gilts being disproportionately hit in the global bond selloff,” he said.($1 = 0.8201 pounds) More