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![\"emerging_market_equities_and_the_mexican_peso_2016-2017.jpg\"](\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2017\/04\/emerging_market_equities_and_the_mexican_peso_2016-2017.jpg\")
<\/a>\nSome of the EM assets being dumped as part of the \u201cTrump trade\u201d have made a comeback. The Mexican peso \u2014 poster child for that trade \u2014 has made a round trip, returning to levels seen before the election. EM equities\u2019 performance against developed market peers has been on the mend, as shown on the chart above.<\/p>\n
Second thoughts on free trade<\/strong><\/p>\n Trump\u2018s victory sent tremors across EMs as the risk of trade wars spooked investors. But the threat looks to have receded, There are other signs that the initial hostility is dissipating. The administration\u2019s recent letter to Congress on renegotiating NAFTA
\nespecially after the Treasury Department did not name China a currency manipulator in its first foreign exchange policy review
\nunder the Trump administration.<\/p>\n
\npointed to a mild stance. Also, Trump\u2019s April meetings with Chinese President Xi Jinping appear constructive, buying both sides
\ntime to address a large bilateral trade imbalance. In a show of cooperation, China has proactively offered some trade concessions.<\/p>\nWe do see longer-term risks as the U.S. is likely to revisit some trade policies from the 1980s and pivot toward a transactional approach
\nto trade. Geopolitical uncertainties are another concern.<\/quote>
\n But in the short term, a lower chance of trade wars is good news for EMs that
\nare benefiting from global reflation and solid domestic demand. Trump\u2019s recent comments that the U.S. dollar is \u201ctoo strong\u201d and
\nsigns of a preference for a low-interest rate policy are also supportive. We see a declining EM risk premium as the market focuses on
\nfundamentals, underpinning our overweight in EM equities. EM Asia equities stand out as a potential major beneficiary, in our view.