War, Tariffs, and the Fed: Challenges for Emerging Markets in 2025

Emerging market outlook to 2025

As the new year begins, emerging markets are poised to navigate a complex environment of geopolitical tensions, trade tariffs, and changes in monetary policy from the Federal Reserve. According to VanEck, these ‘WTF’ risks (war, tariffs, Fed) are top concerns for investors and policymakers alike.

Geopolitical Tensions and Tariffs

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

Fed policy implications

Another important factor affecting emerging markets is the Federal Reserve’s monetary policy. Emerging markets may face increased volatility as the Federal Reserve adjusts interest rates to manage inflation in the United States. Higher U.S. interest rates typically result in capital outflow from emerging markets as investors seek higher returns in a more stable environment.

Performance in 2024

Despite these looming challenges, emerging market debt outperformed developed markets in 2024. This performance highlights the resilience of emerging economies, which have historically delivered attractive returns amid global uncertainty.

Investment strategy amidst risk

Investors are encouraged 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 investing in emerging markets, including political and economic factors, as well as regulatory differences.

For more information, visit the VanEck blog.

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