The Day After—How Trump’s Next Term Could Impact Emerging Markets

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Global Elections Context

Since at least January, pundits heralded 2024 as “the year of the election,” given that over half of the world’s population are voting to choose new leaders. As we reflect on this election cycle, we can’t help but think 2024 will go down as the “year of the opposition” as incumbent parties largely underperformed expectations and previous high-water marks. No doubt the scars of the pandemic and high inflation globally played a critical role in the anti-incumbent/anti-institutional sentiment we have seen in poll results from South Africa to India, France to the UK, and from Mexico to the US.

Trade

President Trump enacted protectionist trade policies during his first term in office and continued to advocate for similar policies on the campaign trail this year. As such, we fully expect restrictive trade measures during his upcoming term. We will await key appointments for Treasury, Commerce and for the US Trade Representative as key signposts for the pace, depth and targets of these policies. With specific regard to tariffs, we believe the costs will be “absorbed” via a combination of (1) weaker exchange rates (stronger US dollar), (2) higher prices paid by consumers and (3) margin compression for exporters/importers.

Geopolitics

Observing Trump in his first term in office, we believe his approach to be isolationist and transactional where historical alliances do not necessarily constrict his thinking. Although there were not any major conflicts during his first term in office, Trump’s approach suggests the US will likely not play a major role in policing disputes or helping to resolve conflicts. On the contrary, some foreign leaders may feel compelled to act more aggressively under the assumption that the US isn’t likely to play a major role. There is likely a wider range of potential outcomes for scenarios in key hotspots in Eastern Europe and the Middle East under a Trump presidency.

Price Action

Asset prices are reflecting red-wave scenarios gamed out by our risk and investment teams. The US dollar is stronger, global rate structures are higher, equities are bid, and spreads are tighter. In the run-up to the US elections, we positioned the EM portfolios for a stronger US dollar and steeper US Treasury curve. With the current repricing, we are evaluating opportunities to take advantage of mispricings.

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