In recent months,the White House has slapped sanctions on countries from Venezuelato Turkey, just as investigations into Russian election meddlingand hush-money payments deepened. (Photo: Diego M.Radzinschi/ALM)

(Bloomberg) –Donald Trump's in trouble and emerging markets may pay the cost, according tosome of the world's largest money managers.

Facing an increasingly grim legal and politicallandscape, Trump is likely to double down on his strategyto distract from domestic concerns by fixing his focus abroad, saidJohn Normand, JPMorgan Chase & Co.'s head of cross-assetfundamental strategy in London. That could escalate his push forhigher tariffs on $200 billion in Chinese imports, among otherthings.

“Overweighting EM broadly isn't the low-worry hedge to atortuous impeachment process,” Normand wrote in a note Thursday,adding that he's “modestly overweight” emerging markets due totheir medium-term value.

Trump has repeatedly turned overseas at times of domesticdistress. In recent months, the White House has slapped sanctionson countries from Venezuela to Turkey, just as investigations intoRussian election meddling and hush-money payments deepened.

A tit-for-tat with China on trade also intensified. SouthAfrica's rand led emerging-market losses Thursday after Trumpleaped into the nation's heated land reform debate.

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“The motive behind Trump's actions is sometimes hard tounderstand, but looking tough to the world is something that goeswell with his America First policy and bodes well to hisconstituency,” said Pablo Goldberg, a money manager at BlackRockInc. in New York.

Mike Pence, first in line for the presidency if Trump wereimpeached, would bring a “significantly higher degree of certainty”on U.S. trade and foreign policy, according to Sonja Gibbs, asenior director at the Institute of International Finance inWashington. By definition, that's a more hospitable environment foremerging markets, she said.

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For now, a more hawkish foreign strategy from Washington may nothurt all developing nations. The White House will probably want toscore some victories before the November midterm elections, whileit ups the ante on other fronts — like the trade tussle with China.One potential winner: Mexico, where officials say progress has beenmade toward a new Nafta deal, Gibbs said.

But it may be an exception.

“I fear the contagion risk to real economic activity,” saidChris Diaz, a money manager at Janus Capital Management in Denver,citing Trump's measures on China and Turkey. “EM was already undersome pressure due to the Fed removing liquidity, rising rates andsome idiosyncratic issues. Then Trump is exacerbating thesituation.”

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