Emerging market crisis not likely under Trump
There is no imminent emerging market crisis ensuing under the Trump presidency, despite his hard line on a number of issues presented during the campaign, as the emerging markets are in a better position than they were a few years ago, according to Brandywine Global Investment Management.
The company's senior vice president and portfolio management, Richard Lawrence, noted that the emerging markets were currently in a better situation due to a massive buildup of foreign exchange reserves, than compared to the late 90s, which would give them the ability to defend their currencies.
Therefore President-elect Trump's harsh rhetoric on Mexico, which had already softened, coupled with US dollar appreciation and the emerging market selloff was rather a knee-jerk reaction to the election results than the real possibility of an emerging market crisis, Brandywine Global said.
"We are waiting for information on his actual policies once in office rather than taking campaign promises at face value, which is why we have not made any significant adjustments to our emerging market position," Lawrence said.
He added that Trump's stand on Mexico would continue to soften, although Mexico was at the epicentre of the post-election sell-off.
"We believe the whole discussion around Mexico may be instead focused on security."
"Our view is that candidate Trump took a very hard line on a number of different issues and he is now walking them back, as he may also do regarding his initial position on trade."
Additionally, according to the firm's Global Fixed Income team, the emerging markets could also now better absorb the shock associated with the depreciation process due to the fact that their currencies were not pegged to the US dollar anymore and the majority were free floating.
Therefore their currency valuations adjusted lower and could act as shock absorbers.
"When Brandywine Global thinks about the dollar and its potential to appreciate or depreciate, we tend to do that on a more trade-weighted basis.
"In our view, the dollar could continue to appreciate against some of the majors but perhaps not as much against some emerging market currencies, which we believe are already mispriced against the dollar," Lawrence said.
AUTHOR
Oksana Patron
Recommended for you
LGT Wealth Management is maintaining a neutral stance on US equities going into 2026 as it is worried whether the hype around AI euphoria will continue.
Tyndall Asset Management is to close down the Tyndall brand and launch a newly-branded affiliate following a “material change” to its client base.
First Sentier has launched its second active ETF, offering advisers an ETF version of its Ex-20 Australian Share strategy.
BlackRock has revealed that its iShares bitcoin ETF suite has now become the firm’s most profitable product line following the launch of its Australian bitcoin ETF last month.
