Emerging Markets  

Emerging markets that could suffer under President Trump

Emerging markets that could suffer under President Trump

Mexico and China are the markets set to suffer the most from Donald Trump’s presidential victory, while Russia’s relations with the US will “undoubtedly” improve.

There have been dramatic swings across financial markets as it became clear Trump was to lead the most powerful nation in the world, with emerging markets appearing to take the brunt of the pain.

The foreign policy implications of Trump’s win will now come under more scrutiny, and fund managers have pointed to the issues and opportunities which could arise if the Republican president’s populist and protectionist views start to become entrenched in US policy. 

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This comes as a number of investment experts recently claimed a Trump victory could extinguish the recovery made across emerging markets over the past year. 

Nick Peters, multi asset portfolio manager at Fidelity International, said there are “significant risks” for emerging markets in light of the outcome of the US election. 

“The US Presidency has substantial clout regarding emerging market-sensitive policies, such as trade tariffs and barriers, renegotiating the North American Free Trade Agreement, or designating currency manipulators, with potential implications for China or Korea. 

“While economic expediency could serve to limit the negative impacts, sentiment is likely take a ‘knee-jerk’ hit – especially in Mexico.”

Michael Levy, frontier and emerging markets investment director at Barings, said there is likely to be a great deal of apprehension in Mexico over what the next few months will bring.

Almost a third of Mexico’s GDP relies on its northern neighbour, and Mr Levy said Trump’s promise of a 35 per cent tariff on US companies that outsource abroad could be costly, particularly for the automotive industry.

“If we are moving toward tariffs, global trade will likely suffer and capital flows between countries may weaken, and Mexico’s reliance on the US could see it disproportionally affected.”

This comes as Douglas McWilliams, president for the Centre for Economics and Business Research, said Japan and Korea clearly stand to lose from the outcome of the US election, as does much of Latin American and the Arab world.

Mr Levy also pointed out that much of Trump’s ire has been directed at China and its economy’s undercutting of the American worker. 

This culminated in talks of a 45 per cent tariff against Chinese exports, a move which the Barings’ investment director claimed could start a trade war. 

“The global supply chain, which is highly interconnected in the IT and automotive industries, would also suffer greatly and is already facing disruption after the Brexit vote in the UK. 

“If we do find ourselves in a trade war, Chinese authorities would likely act to stimulate demand, but the Chinese equity market, which has performed well in recent months, could become increasingly volatile.”

Yet Mr Levy was far more optimistic when it comes to Russia, which he argued will be the perhaps the greatest beneficiary of a Trump presidency.