*

Trump's tariffs on Mexico, Canada and China materialize

*

Brokerages warn of recession in Canada, Mexico

*

Argentine peso trades for first time under new currency

regime

*

MSCI Latam FX down 1%, stocks fall 1.6%

By Purvi Agarwal

Feb 3 (Reuters) - Emerging market assets broadly sold

off on Monday, with the Mexican peso slumping to a near

three-year low, after U.S. President Donald Trump slapped

tariffs on top U.S. trading partners, sparking concerns of a

global trade war.

Trump on Saturday ordered sweeping tariffs on Mexican,

Canadian and Chinese imports, with a hefty 25% on the U.S.

neighbors and a 10% on goods from China, starting Tuesday.

The Mexican peso dropped 1.4%, after touching its

lowest level since March 2022, and options markets were pointing

to more volatility in the coming days.

International bonds issued in Mexico were also broadly

lower. Stock markets were closed for a public holiday, but the

U.S.-listed exchange traded fund tracking Mexican stocks

fell 2.5%.

Mexico and Canada immediately announced retaliatory tariffs,

while China said it would challenge the order at the World Trade

Organization. Further clues are awaited from Trump's call with

the Canadian and Mexican leaders later in the day.

"The key for all of this is how long the tariffs last.

The market is still discounting the likelihood these tariffs are

in place for more than a short period of time," said Brad

Bechtel, global head of FX at Jefferies.

"The policy divergence between the US and the rest of the

world is starting to widen and that dynamic will likely persist

the longer the tariffs remain in place, which means those

currencies (MXN and CAD) could get quite a bit weaker."

Major brokerages including JPMorgan warned that the

economies of Canada and Mexico could enter a recession if the

tariffs were sustained.

Colombia's peso fell 0.6%, despite the country

narrowly escaping tariffs after reaching an agreement with the

U.S. in January.

Trump's "friendly" talks with China had led investors to

hope that the U.S. could take a softer approach to tariffs. But

his weekend move fueled uncertainty and sent investors flocking

to safe-haven assets, with the dollar higher against most

currencies.

The commodities market also took a hit, with copper prices

hitting a four-week low, impacting export-heavy Latin American

economies.

Stocks in Chile, the world's largest copper

producer, were off 1%, while its peso weakened 0.7%

despite strong December economic activity figures.

MSCI's index tracking Latam currencies was

down 1%, while the stocks measure was down 1.6%.

The Brazilian real fell 1%, while its Bovespa index

was down 0.1%.

Argentina's peso depreciated 0.1%, in the first

trading session of a new currency scheme. The Merval index

shed 3.1%.

Investors are awaiting more clarity on internal fiscal moves

and Trump's new policies to evaluate the outlook for pressured

EM assets this year. Argentina and Mexico are due to announce

monetary policy decisions this week.

Elsewhere, South African assets slumped after Trump

threatened to cut off funding for the country, with the rand

down 1.1%.

Highlights:

** Chile's economy beats forecasts, grows for sixth straight

month in December

** Colombia's Ecopetrol extends contract with Occidental

Petroleum in Permian basin

Key Latin American stock indexes and currencies:

Equities Latest Daily %

change

MSCI Emerging Markets 1072.2 -1.94

MSCI LatAm 1994.52 -1.56

Brazil Bovespa 126007.27 -0.1

Mexico IPC 51209.53 -1.62

Chile IPSA 7127.89 -1

Argentina Merval 2484524.2 -3.13

7

Colombia COLCAP 1512.03 -0.64

Currencies Latest Daily %

change

Brazil real 5.8984 -0.98

Mexico peso 21.0199 -1.65

Chile peso 986.9 -0.67

Colombia peso 4226.25 -0.57

Peru sol 3.732 -0.13

Argentina peso (interbank) 1053 -0.14

Argentina peso (parallel) 1205 1.24