Now that the US president elect, Donald Trump, has won back the keys to the White House, what does that mean for emerging markets?
The big issue seems to be whether emerging market returns are enough to entice US investors (plus other international funds) from a likely comfortable “home bias.”
A Trump residency is seen strengthening the US dollar, with investors expecting his policies to lead to higher inflation. This in turn may force the Federal Reserve to keep higher rates to keep the economy from overheating. Ultimately, this should keep the US dollar and its home markets stronger.
Outside the US, not much can be said. Year to October 31, the MSCI Frontier Markets Africa Index, which captures 12 frontier markets in Africa covering approximately 85 percent of the free float-adjusted market capitalisation in each country, has underperformed the MSCI USA index by more than 50 percent.
Similarly, both the MSCI Emerging Markets and MSCI World indexes are underperforming the US market by over 15 percent on average this year.
Pundits agree more outflows from emerging markets will continue to support US markets during Trump’s presidency.
Trump’s plan to cut the corporate tax rate to 15 percent from 21 percent would certainly be positive for the S&P. Therefore, odds for a weaker dollar environment that set the ground for US money to flow overseas look increasingly low. A tough trade in 2025.
But not to be downbeat, there’s something investors can…
