Emerging Markets Face Uncertainty Ahead of Trump’s Return to Power
As the dust settles on the US presidential election, investors are grappling with the implications of Donald Trump’s return to the White House on emerging markets. After years of global interest rate hikes, many had hoped for a “Goldilocks” moment in 2025, but instead, they’re facing significant uncertainty.
Dollar’s Rally and Tariff Worries Weigh on Emerging Markets
The dollar’s strong rally and concerns over potential US tariffs have taken a toll on emerging market currencies and bonds. Investors are now reassessing their exposure to developing world assets, weighing the likely costs of Trump’s policies.
A More Cautious Approach
“We’ve been positive on emerging market assets this year, but we need to think about next year and position ourselves in a more cautious way,” said Yerlan Syzdykov, global head of emerging markets at Amundi. The prospect of a Republican sweep, with control of the House, Senate, and presidency, could be a game-changer, he added.
Rebounding Investor Inflows
Despite the challenges, investor inflows to emerging markets have been rebounding after a painful few years. Net portfolio inflows into developing economies’ stocks and bonds have reached nearly $250 billion through September, above the $177 billion for all of last year.
Emerging Market Growth Differentials
Anders Faergemann, senior portfolio manager with PineBridge Investments, noted that emerging market growth differentials versus the developed world are at their highest in a decade. However, JPMorgan’s emerging market hard-currency bond index has returned around 6% this year, while local government bonds are struggling.
Risks and Opportunities
The Trump win has left China under pressure, and emerging market currencies, including Poland’s zloty and Hungary’s forint, are at risk due to their reliance on trade. However, countries like India could benefit from Trump’s hardline approach to China, while Argentina has also lured investors back with spending cuts and reform.
Strongman Trade and Geopolitical Shifts
A sea change in geopolitics could fuel other turnaround stories. Ukraine’s international bonds and GDP warrants rallied strongly after Trump’s win, lifted by optimism he could hasten the end of its war with Russia. Argentina’s stocks and bonds also rallied as investors cheered potentially closer ties between Trump and Argentina’s President Javier Milei.
Debt Issuance and Volatility
Bankers had hoped that this year’s debt issuance boom could continue into 2025. However, some worry volatility before and after Trump’s January inauguration could impact primary market issuance. High debt costs could further crimp emerging markets’ access to cash, which is already a key worry for the likes of the International Monetary Fund.
Less Fear, More Resilience
Despite the uncertainty, investors say the fear and market gyrations that followed Trump’s 2016 win are less likely this time round. Developing countries and assets with a good narrative can continue to attract capital. “We’ve seen Trump before, so we’ve seen that movie before – and we survived,” Amundi’s Syzdykov said.
Leave a Reply