Donald Trump spooks emerging markets
Abu Dhabi/New York: While markets have largely rebounded from their initial fall following the surprise win of Republican nominee Donald Trump in this week’s US presidential elections, the futures market is signalling a sharp divergence in the fortunes of global stocks.
After falling as much as 7% in the immediate aftermath of the vote, the mini MSCI Emerging Markets (EM) Index futures contract pared its losses to close down 3.23%, and is up by 1.04% in early Thursday trading.
The recovery lags that of the active contract in S&P 500 futures, however, which ended on Wednesday 1.16% higher after initially falling by 5.01%. On Thursday it’s up by almost a third of 1%.
“The MSCI EM mini contract is not getting any support from the rally in US stocks,” said Neil Dutta, head of US economics at Renaissance Macro Research LLC. “This is the Trump trade in action. ‘America First.’”
Trump’s campaign platform of protectionist trade policies and a mooted withdrawal from trade agreements negotiated by previous administrations is widely viewed as a negative for emerging markets that rely on doing business with outside countries for the bulk of their income.
In a note published on Wednesday, for instance, Citigroup analysts argued that risk premiums for emerging markets have “just gone up” in the aftermath of Trump’s win.
“From the election campaign, one can surmise that Mr Trump is not exactly trade-friendly and would like to renegotiate certain security agreements,” wrote Citigroup Inc. analysts led by Markus Rosgen. “Increased tariffs toward goods made in EM would have an impact on liquidity and profits within EM. Neither of these two outcomes are a positive for EM.” Bloomberg