Positioning EMD ahead of the US election

The potential outcomes of the US presidential election present contrasting scenarios for foreign policy and emerging market debt (EMD). A Trump presidency is expected to intensify focus on the Chinese yuan, potentially leading to tariffs on Chinese sectors such as electric vehicles, impacting commodity prices like aluminum and copper. Trump's administration may support West-leaning governments open to capital investment, with Argentina being a notable benefactor due to its alignment with US conservative policies.

In Eastern Europe, Trump's return could lead to increased defense spending demands on governments aligned with his ideology, such as Hungary. The imposition of tariffs on EU exports to the US could disproportionately affect the region, particularly impacting manufacturing sectors like white goods and offshored German cars. This scenario may lead to increased taxes or borrowing amid slowing domestic economies.

US-China relations are expected to remain tense, with bipartisan consensus on trade restrictions likely persisting. However, some accommodation might be reached, albeit with potential market access concessions from China. In Latin America, a Trump administration might exert pressure on countries like Mexico, potentially reducing remittances but also creating opportunities for nations that align with his policies.

Commodity markets could see shifts under Trump, with tariffs on Chinese EVs affecting metal prices and potential sanctions on Iran influencing oil prices, albeit less effectively due to current surpluses. In Ukraine, a Trump victory might unravel existing agreements, pressuring the country towards peace talks and impacting financial aid strategies. Overall, a Trump presidency could bring significant changes to international economic relations, presenting both challenges and opportunities for investors.