Emerging markets
In emerging markets, Michael Levy, frontier and emerging markets investment director at Barings, said Mexico was one of the biggest areas for nervousness, given Trump’s rhetoric against the country, as was his plans to renegotiate NAFTA and trade agreements with China.
Levy said: “If we are moving toward tariffs, global trade will likely suffer and capital flows between countries may weaken—Mexico’s reliance on the US could see it disproportionally affected.
“Almost a third of Mexico’s GDP relies on its northern neighbour and Trump’s promise of a 35% tariff targeted at US companies that outsource abroad could be costly, particularly for the automotive industry. Trump has also mentioned plans to renegotiate the North American Free Trade Agreement, another potentially worrying development.”
He warned the talk of 45% tariffs on Chinese exports could potentially start a trade war, with global supply chain – heavily linked to the IT and automotive industries – likely to be hit hard,
“At this point we should note that trade policy can be changed by executive order—an intransigent Congress may not be able to intervene. If we do find ourselves in a trade war, Chinese authorities would likely act to stimulate demand, but the Chinese equity market, which has performed well in recent months, could become increasingly volatile.”
Russia looks set be the biggest beneficiary from a Trump win, he said.
“Russian relations with the U.S. will now undoubtedly improve. We will possibly see a reduction in sanctions in the coming months, allowing Russian businesses to more easily finance themselves. This should provide a boost to Russian companies’ prospects and may present new opportunities among Russian equities.”
Multi-asset
Meanwhile in the mixed asset space, Trevor Greetham, head of multi-asset at Royal London Asset Management, said the team were set for panic-induced shopping spree in EM equities.
He said: “Market reaction so far has been as we expected with S&P stock futures and Asian equity markets initially down by about 5% but starting to rally, bond futures up – though nothing like the Brexit shock – and the oil price off.
“The risk off move could run for a while, but in our multi-asset funds we look to buy stocks on signs of panic, and a classic contrarian buy signal is developing. We had lightened up equity exposure a week ago, when the markets were pricing in a Clinton victory, so will look to redeploy those assets and possibly more at lower prices. We are likely to add to our overweight in the emerging markets equities, where dollar weakness is a positive. With global growth picking up and inflation starting to rise, commodities could also do well for a while.
