Quarterly Insights from Macquarie Systematic Emerging Markets Equity Fund, covering the period of Q2 2025.
In the second quarter of 2025, global equity markets experienced a sell-off, following President Trump's tariff announcement on April 5, dubbed the "Liberation Day" tariffs. These tariffs implemented a universal 10% baseline tariff on imports from many countries and substantial reciprocal tariffs on specific countries, including China.
The tariffs had a significant impact on multiple industries such as automotive, steel, and electronics, raising concerns about inflation, supply chain disruptions, and reduced corporate profitability. These factors negatively affected global equity markets in the short run.
However, the MSCI Emerging Markets Index, which is particularly vulnerable due to its reliance on exports and supply chain linkages to the U.S. and China, suffered more acute declines. The sell-off was a response to increased trade tensions and retaliatory tariffs, notably China's initial high reciprocal tariffs reaching 145% before being reduced in May.
Despite the initial setback, recovery began after China and the U.S. agreed to reduce reciprocal tariffs in mid-May, lowering the heightened tariffs to about 10% for a 90-day period. This move eased investor fears and supported a partial rebound in emerging markets and the global equities sector.
Furthermore, tariff rate adjustments following executive orders and trade negotiations helped stabilize market sentiment later in 2Q25. As a result, the MSCI Emerging Markets Index (net) returned 11.99% in US dollar terms during the second quarter of 2025. This return was roughly equivalent to that of developed markets.
In summary, the April 5 tariff announcement caused an initial downturn in global and emerging market equities in 2Q2025, with emerging markets bearing more acute impacts. However, recovery was linked to subsequent tariff negotiations and easing measures, notably by mid to late 2Q2025, supporting a rebound in both global market indices and MSCI Emerging Markets performance.
Partnering with the MSCI Emerging Markets Index's vulnerability due to export and supply chain dependencies, fresh investments in the second quarter of 2025 were restrained by the global equity markets' negative response to the increased trade tensions. In response to the unfolding business challenges, strategic investors seeking more profitable avenues might have sought opportunities in sectors less impacted by the tariffs, such as domestic business ventures or industries with less reliance on international supply chains.
