Is Goldilocks gone? Emerging markets face uncertain path under Trump
Investors turn cautious as they await Trump policy details
Emerging currencies hit by dollar rally and tariff fears
Some, such as Argentina and India, could thrive
By Libby George
LONDON, Nov 8 (Reuters) -Investors hoping for a "Goldilocks" moment for emerging markets in 2025 following years of global interest rate hikes are grappling with significant uncertainty ahead of Donald Trump's impending return to the White House.
The dollar's rigorous rally, and worries over U.S. tariffs, potential unfunded spending sprees and slowing interest rate cuts from the Fed knocked a string of emerging market currencies and weighed on some bonds as the election results rolled in.
Now, investors are tallying up the likely costs of Trump's policies for developing world assets.
"Although we've been positive on emerging market assets this year, and performance has been strong, we have to think about next year and position ourselves in a more cautious way in both local currency and hard currency," said Yerlan Syzdykov, global head of emerging markets at Amundi, Europe's largest asset manager.
The prospect of a 'red sweep' - with Republicans also taking control of the House, in addition to the presidency and the Senate - would be a "bit of a game changer", Syzdykov said.
Investor inflows to emerging markets have been rebounding after painful years of low risk appetite during the 2020 COVID-19 pandemic that stayed subdued as central banks worldwide hiked rates. This led investors to keep their money in safer developed world assets.
Net portfolio inflows into developing economies' stocks and bonds, which fell to virtually nothing in 2022, have rebounded to just under $250 billion through September this year, above the $177 billion for all of last year, according to data from the Institute of International Finance.
"Before the election, there was a lot of optimism around emerging markets," said Anders Faergemann, senior portfolio manager with PineBridge Investments, noting that emerging market growth differentials versus the developed world were at their highest in a decade.
JPMorgan's emerging market hard-currency bond index has returned around 6% this year, while local government bonds are treading water.
This might mirror 2016, when EM local currency bore the brunt of Trump's surprise election win, Allianz Global Investors said in a note to clients.
Faergemann said the Trump win left China under pressure, and emerging market currencies, including Poland's zloty and Hungary's forint, which slumped to a two-year low, are at risk due to their reliance on trade - and the risk of Trump tariffs.
Mexico's peso - a bellwether for emerging market currencies - dropped as much as 3.6% this week after Trump's sweep became clear, but quickly retraced losses. The decline was much less pronounced than the near-8% drop it suffered in 2016.
Many are watching closely for clues on Trump's spending - and the impact that could have on the Fed interest rate trajectory; higher fiscal deficits could lead to slower rate cuts.
"Higher rates and a strong U.S. dollar are a headwind...(as are) some of the proposed policies like tariffs," said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.
STRONGMAN TRADE
But some optimism remains.
Countries such as India could benefit from Trump's hardline approach to China, Amundi's Syzdykov said, while Argentina has also lured investors back with spending cuts and reform.
"There are certain sectors, countries that could benefit from a Trump victory," said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management. "You can generate a lot of value in an emerging market portfolio."
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 brash libertarian President Javier Milei - part of what has been dubbed the "strongman trade."
FEAR AND GYRATIONS
Bankers had hoped that this year's debt issuance boom could continue into 2025. But some worry volatility before and after Trump's January inauguration - traditionally a heavy issuance month - could impact primary market issuance.
Barclays estimates that emerging market sovereign international bond sales will reach as much as $160 billion this year, and around $130 billion next year.
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.
But overall, investors say the fear, market gyrations and risk aversion that followed Trump's 2016 win were less likely this time round - meaning developing countries and assets inside them 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.
Inflows to EM bounced back after drying up in 2022 https://reut.rs/3YT9KRo
Ukraine bonds jump for Trump https://reut.rs/3UF0uOa
Emerging currencies stumble over Trump win https://reut.rs/40zyyiE
Additional reporting by Rodrigo Campos in New York and Lisa Mattackal in Bengaluru. Graphics by Marc Jones and Rodrigo Campos. Editing by Karin Strohecker and Daren Butler
Aset Berkaitan
Berita Terkini
Penafian: Entiti XM Group menyediakan perkhidmatan pelaksanaan sahaja dan akses ke Kemudahan Dagangan Atas Talian, yang membolehkan sesorang melihat dan/atau menggunakan kandungan yang ada di dalam atau melalui laman web, tidak bertujuan untuk mengubah atau memperluas, juga tidak mengubah atau mengembangkannya. Akses dan penggunaan tersebut tertakluk kepada: (i) Terma dan Syarat; (ii) Amaran Risiko; dan Penafian Penuh. Oleh itu, kandungan sedemikian disediakan tidak lebih dari sekadar maklumat umum. Terutamanya, perlu diketahui bahawa kandungan Kemudahan Dagangan Atas Talian bukan permintaan, atau tawaran untuk melakukan transaksi dalam pasaran kewangan. Berdagang dalam mana-mana pasaran kewangan melibatkan tahap risiko yang besar terhadap modal anda.
Semua bahan yang diterbitkan di Kemudahan Dagangan Atas Talian kami bertujuan hanya untuk tujuan pendidikan/maklumat dan tidak mengandungi – dan tidak boleh dianggap mengandungi nasihat kewangan, cukai pelaburan atau dagangan dan cadangan, atau rekod harga dagangan kami, atau tawaran, atau permintaan untuk suatu transaksi dalam sebarang instrumen kewangan atau promosi kewangan yang tidak diminta kepada anda.
Sebarang kandungan pihak ketiga serta kandungan yang disediakan oleh XM, seperti pendapat, berita, penyelidikan, analisis, harga, maklumat lain atau pautan ke laman web pihak ketiga yang terdapat dalam laman web ini disediakan berdasarkan "seadanya" sebagai ulasan pasaran umum dan bukanlah nasihat pelaburan. Sesuai dengan apa-apa kandungan yang ditafsir sebagai penyelidikan pelaburan, anda mestilah ambil perhatian dan menerima bahawa kandungan tersebut tidak bertujuan dan tidak sediakan berdasarkan keperluan undang-undang yang direka untuk mempromosikan penyelidikan pelaburan bebas dan oleh itu, ia dianggap sebagai komunikasi pemasaran di bawah peraturan dan undang-undang yang berkaitan. SIla pastikan bahawa anda telah membaca dan memahami Notifikasi mengenai Penyelidikan Pelaburan Bukan Bebas dan Amaran Risiko mengenai maklumat di atas yang boleh diakses di sini.
