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(Bloomberg) -- Emerging-market assets slumped, erasing gains for the year as fallout from President Donald Trump’s trade policies continued to upend global markets on Monday.

MSCI’s main emerging equity index slid 7.9%, its biggest drop since the 2008 global financial crisis, as China’s retaliatory duty on US goods rippled through Asian markets. A sister gauge EM currencies fell as much as 0.6%, touching session lows after Trump threatened an additional 50% tariff on China unless the levies are withdrawn.

“Emerging markets are still under pressure from Liberation Day tariffs, but new tariff threats directed at China have exacerbated the selloff,” said Brendan McKenna, a currency strategist at Wells Fargo in New York. “Markets were very taken aback by the extent of tariffs on global trading partners and also the tariff rates that were ultimately imposed.”

Monday’s slump left EM equities down 6.9% for the year — still outperforming than the S&P 500’s 14% decline. The MSCI gauge for developing currencies, which trimmed 2025 gains as investors flock back to the dollar, is still up 1.2% in the span.

The sweeping US tariffs introduced by the US last week are threatening to sharply slow the world’s largest economy, with many economists, including at Goldman Sachs Group Inc., seeing the risk of recession and traders boosting bets on Federal Reserve interest rate cuts.

Morgan Stanley told investors to add to their bearish bets on emerging-market currencies, while recommending increased exposure to local debt and interest-rate swaps on expectations for a more dovish stance from developing-world central banks.

“We don’t believe FX markets are fully pricing a global recession,” strategists including James Lord wrote in a note Monday, suggesting going long the US dollar against the Colombian peso, and also betting on gains in the euro against the Polish zloty.

The higher levies could also devastate developing nations’ trade and economies, especially as countermeasures kick in. Hard currency bonds from nations including Pakistan and Sri Lanka — which were levied at 29% and 44%, respectively — were among the worst performers Monday.

The European Union is proposing 25% tariffs on a selection of US goods in retaliation for Trump’s decision last month to put levies on aluminum and steel import, according to a document seen by Bloomberg News. Emerging assets held on to losses following the report.

China rout

Beijing, which faces some of the stiffest curbs, retaliated Friday with tariffs on US imports. The moves sent Chinese shares in Hong Kong down 13.8% on Monday, putting them into a bear market, while the People’s Bank of China weakened its daily yuan reference rate to a level unseen since December. That’s raised speculation Beijing may resort to devaluing the yuan against the dollar.

The offshore yuan added to losses, falling to a session low after Trump’s threat of more tariffs. Latin American currencies also dipped further on the headlines, with the Colombian peso falling more than 3% and the Brazilian real hitting the lowest since January.

The sharp moves in global markets forced many central banks to step to their currencies’ defense. While Indonesian markets have been shut for a week-long holiday, the central bank acted Monday to preempt what could be a turbulent reopening by intervening in the offshore rupiah market. Officials said they will “aggressively” intervene onshore, when the local market reopens on Tuesday.

Meanwhile, Nigeria’s central bank sold dollars to ensure “adequate liquidity” and stem an erosion of the naira exchange rate, while earlier in the day Taiwan’s state-backed lenders sold the greenback.

Volatility

Global stocks briefly pared losses Monday, with the S&P 500 turning positive amid reports that Trump was considering a 90-day pause in tariffs for all countries except China. The moves, which also helped prop up developing currencies, soon faded as the White House denied the information as “fake news.”

“Anyone buying risk on these headlines is taking a huge gamble, to state the obvious,’ said Win Thin, global head of markets strategy at Brown Brothers Harriman.

--With assistance from Abhishek Vishnoi and Joanna Ossinger.