— Donald J. Trump
Emerging markets took a hit on Wednesday as the US dollar strengthened following Donald Trump’s return to the White House. This resurgence of the “Trump trade” has pushed US Treasury yields higher and triggered broad sell-offs in emerging market currencies and stocks.
Eastern European currencies led the declines, pushing the MSCI Emerging Markets Currency Index to its worst performance since February 2023. The Mexican peso, often seen as highly vulnerable to Trump’s trade policies, fell as much as 3.5% before recovering some losses, closing around 0.3%. inferior.
Rajeev De Mello, CIO of Gama Asset Management, noted: “A Trump presidency will implement tougher and broader tariffs than the last Trump administration,” with particular attention to China. Trump has suggested blanket tariffs of 10-20% on all imports and up to 60% on Chinese imports. This prospect pushed the MSCI Emerging Markets Equity index down 0.7%.
Despite a generally bearish tone, some high-yield bonds, such as those of Ukraine and Argentina, showed gains amid expectations that Trump may push for peace talks in Ukraine, potentially easing geopolitical tensions.
Strategists warn that Trump’s tariff policies, combined with high US yields and a strong dollar, could continue to put pressure on emerging market assets. Ed Al-Hussainy of Columbia Threadneedle Investments pointed out that this election outcome “opens the door to a stronger US dollar, higher US real rates, and tariff policies that disproportionately hurt emerging market exporters.”