Emerging-market currencies erased 2019 gains and stocks are teetering on the edge of following suit as investors dump riskier assets amid a renewed eruption in trade tension.

MSCI’s currency gauge has dropped 0.5% this year, reversing yearly gains of as much as 2.2% just a week ago. The stock index is clinging to a gain of less than 0.4%. Even during the worst of a May selloff, stocks were still up 2% on the year.

Just four of 24 developing-nation currencies are still above water, compared with 11 last Tuesday, before the Federal Reserve cut rates for the first time in more than a decade. Seven benchmark stock indexes are down, from four two weeks ago, after South Korea, Poland and Indonesia lurched to red from green.

The appeal of risky assets has faded after U.S. President Donald Trump announced further tariffs and Chinese authorities allowed the yuan to fall past the key psychological level of 7 per dollar. The Federal Reserve’s hawkish message as it lowered borrowing costs also weighed on sentiment.

With few prospects of a quick resolution to the trade dispute, investors and analysts say a rebound in emerging-market assets isn’t likely anytime soon. Morgan Stanley strategists, who removed a bullish call for emerging-market currencies after the Fed’s decision, now recommend clients stay defensive, while Citigroup says it’s time to cut risky wagers in developing nations. Societe Generale describes the current move as a “meltdown phase.”

“Developments so far this week have only added to our conviction that investors will look to de-risk their portfolios,” Morgan Stanley strategists led by James Lord wrote in a note on Tuesday. “Risk-aversion moved to extremes, yet we would recommend fading any bounce in risk assets as global growth and trade concerns are unlikely to improve any time soon.”

For Per Hammarlund, chief emerging-markets strategist at SEB AB in Stockholm, trade tension escalation marks a “sharp deterioration” in the outlook for emerging markets. He says the Mexican peso, Brazilian real, Turkish lira and South African rand are among the most vulnerable currencies.

“The market reaction will likely be a prolonged period of weakness both in EM currencies and EM equities as investors adjust to lower GDP and earnings growth projections,” Hammarlund said.

Summary of Emerging-Market Moves

• MSCI Emerging Markets Index of stocks up 0.4% this year at 969.45
• MSCI EM Currency Index is down 0.5% at 1,606.35
• JPMorgan EMBI Plus Sovereign Spread widened by more than 30 bps in the past four days, climbing above 400 bps
• The $59.4 billion Vanguard FTSE Emerging Markets ETF, the biggest EM ETF, fell 5.7% over the past week
• CBOE Emerging Markets ETF Volatility Index reached the highest since mid-May
• Brazilian real and the Mexican peso erased their 2019 advances