Senior investment figures have warned that Donald Trump’s protectionist views pose a huge threat to emerging markets, arguing he could destroy the progress the sector has made over the past year.
Emerging markets have made a rapid recovery throughout the course of 2016, with the MSCI Emerging Markets index returning 16 per cent year-to-date in US dollar terms, after making a loss of almost 0.6 per cent over the past three years.
But as the US election date edges closer, concerns about Republican candidate Mr Trump’s protectionist policies haunt the less-developed markets, which have benefited from trade with the US.
Paul O’Connor, head of multi-asset at Henderson Global Investors, said the US election is a “significant binary risk” for emerging market assets, adding the big danger is the looming threat of trade protectionism associated with a Trump victory.
“Although the probability of a Trump victory appears to be falling, it is still a sizeable tail risk for emerging markets.”
A win for Mr Trump, Mr O’Connor said, would usher in a significant period of global uncertainty as markets focus on the possibility of a full trade war.
“This would certainly weigh heavily on global risk appetite and would be a massive setback for the rehabilitation of emerging markets.
“It’s quite plausible that a Trump victory would completely extinguish this year’s recovery in emerging market assets.”
John Peta, who manages Old Mutual’s £169m Emerging Markets Debt fund, said if Trump was to win, then he would expect emerging markets to sell-off quite violently in the immediate aftermath of the vote.
But he argued the market could quickly stabilise as investors wait to see how his policies unravel, suggesting markets could mimic the wobbles seen after the UK voted to leave the European Union.
“A Trump victory would be bad for a lot of emerging market countries” he said, with the exception of countries run by “non-democratic strong men”, such as Russia and Turkey, which he argued are likely to be given a freer ride.
Mr Peta said some emerging market currencies “breathed a sigh of relief” last week and strengthened when a video emerged of Mr Trump boasting about groping women.
The OMGI manager was even prompted to buy some Mexican currency after the video went viral, saying he felt it would “seal Trump’s fate” and lead to his downfall.
Tony Hann, head of equities at Blackfriars Asset Management, said Trump’s anti-trade stance is generally not good for business, but questioned whether in reality his actions would fall short of his electioneering talk if he was elected.
Analysis from exchange-traded fund provider Source found markets had not been hugely affected in the run-up to any of the past 11 US elections.
Jason Hollands, managing director at Tilney Bestinvest, said a Trump win would "undoubtedly rattle the capital markets", given his protectionism, volatile personality and "bellicose views" on foreign policy.
