Investment bank JPMorgan downgraded its recommendation for emerging currencies to "underweight" on Thursday after U.S. tariffs exceeded its worst-case scenario.
U.S. President Donald Trump late on Wednesday announced "reciprocal" tariffs ranging from 10% to above 40%.
"While there remains scope for negotiation and de-escalation, we think this round of tariffs is a pivotal turning point for EM fixed income outlook in coming months, as the shock to sentiment and capital flows is likely to endure and requires higher risk premia," the bank said in a note.
JPMorgan kept its underweight stance on emerging market sovereign and corporate credit, but upgraded emerging market local bonds to marketweight.
The bank said that emerging Asia and Europe were harder hit on a relative basis than Latin America and frontier markets, and said that emerging markets in Asia face further foreign exchange weakness and lower policy rates.
It also warned that potential tit-for-tat retaliation should dampen risk and business sentiment, which would require riskier high-yield assets to trade at a bigger premium to investment grade peers.
