Global Markets Feel the Trump Effect
As the dust settles on Donald Trump’s presidential victory, the impact on global markets is becoming increasingly clear. While US stocks soar to record highs and the dollar reaches a two-year peak, the rest of the world is feeling the pinch.
A Divided Market
The stark contrast between US and non-US assets has never been more apparent. An MSCI gauge of international equities has plummeted to its lowest point in three months, while an index of developing-market currencies has lost over 1% since the US election. European stocks and the euro are also struggling to stay afloat.
Trump’s “America First” Agenda Takes Shape
As Trump’s cabinet takes form, investors are bracing themselves for a raft of policies that could drive inflation higher and limit the flexibility of central banks. The prospect of higher tariffs, particularly on China, is causing jitters among investors, who are flocking to the perceived safety of US assets.
US Stocks Win Big
Fund managers are increasing their exposure to American stocks, with many expecting Trump’s domestic-focused policies to favor US companies. “We’re rotating into investments that will benefit from Trump’s expected policy choices,” said Rajeev De Mello, chief investment officer at Gama Asset Management SA.
Emerging Markets Take a Hit
Emerging markets like China and Mexico, seen as vulnerable to Trump’s trade policies, are bearing the brunt of the market volatility. Shares in South Korea are plummeting, with foreigners selling companies like Samsung Electronics Co. that are exposed to trade protectionism.
Dollar Strengthens
The dollar is edging higher, reaching its highest point since November 2022. Investors are closely watching cabinet appointments for clues on whether Trump’s campaign rhetoric will translate into policy.
Central Banks Intervene
Some central banks, including Bank Indonesia and Banco Central do Brasil, have intervened in markets to support their currencies. The People’s Bank of China has set its reference rate for the yuan stronger than expected, indicating its discomfort with currency weakness.
Pockets of Safety
While US assets are currently in favor, some money managers are seeking refuge in markets like India that are deemed less affected by Trump’s policies. Others believe punitive tariffs on Chinese goods could spur a shift of investment towards Southeast Asia.
The “US Exceptionalism” Theme
Despite the global uncertainty, many investors remain bullish on US equities. “The ‘US exceptionalism’ theme looks like it still has plenty left in the tank,” said Michael Brown, a senior strategist at Pepperstone Group Ltd. “I still have full faith in the bull case for equities, particularly with the incoming Trump Administration likely to provide a further fillip to economic growth and corporate earnings.”
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