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Trump and emerging markets: Don't panic

Nov 13 2016 14:35
Fin24

Cape Town – Despite the rhetoric United States (US) President elect Donald Trump can achieve positive trade agreements that could benefit emerging markets, said Mark Mobius, Executive Chairman of Templeton Emerging Markets Group. 

“The US presidential election resulting in a victory for Donald Trump has many potential implications for markets around the world, including emerging markets. 

READ: Trump victory rocks markets 

“When it became clear that Trump would emerge the winner, stock markets echoed the shock many US voters felt. Emerging markets were particularly volatile,” said Mobius in his blog. 

Relations between the United States and Mexico - Latin America’s second-largest economy - were a focal point for Trump’s campaign amid promises to build a larger border wall to reduce immigration and to nullify the North American Free Trade Agreement (Nafta), which also includes Canada. 

Trump’s victory caused the Mexican peso to plunge to a record low against the US dollar the day after the election, and Mexico’s equity market likewise declined, along with most other Latin American markets.

“Although the global markets are likely to remain volatile for a period of time given the uncertainty surrounding potential US policies under a Trump presidency,” said Mobius, “we need to take a step back and realise that much of the rhetoric we heard on the campaign trail may not result in any concrete action.” 

READ: How Trump policies could hit SA economy 

Taking Trump’s during the campaign at face value, many expect some extreme policies to be put into place. However, Mobius was of the view that the pessimism may not be warranted given the nature of the US economy and political system of checks and balances that remains in place. 

“And certainly, should Trump be able to achieve the type of robust economic growth he had pledged for his country, we think other nations, including Mexico and other emerging markets, are likely to benefit.”

Mobius said he was “not all that shocked” that Trump won the election. “We’ve seen similar voter disenfranchisement in Europe and other places around the world which has now manifested in the United States. In particular, many of the pre-election polls didn’t fully capture the dissatisfaction of Americans living in economically depressed rural areas of the country.”

Being a businessman, Mobius said, Trump will likely feel at home engaging in negotiations with other countries. 

“I think he should be able to reach some trade and investment agreements that will satisfy both parties. For example, there could be a new relationship and trade agreement with Russia, given Russia was also a pre-election focal point for Trump.”

In addition, Mobius believed there could be positive impacts for a number of other emerging countries, which were not happy with the blanket and rigid rules of multilateral agreements. 

“There may be the potential for lower taxes and a more business-friendly environment in the United States, which in turn could result in more active efforts by US companies to not only expand domestically but also internationally, particularly in the high-growth, emerging-markets arena. 

READ: SA must analyse trade options after US elections - Winde 

“If I had to deliver a message to the new US president, I would ask him to accelerate free-trade and free-investment agreements with countries all over the world.” 

Mobius said overall, there are compelling reasons for investments in emerging markets in general, including high-growth rates, sound fiscal policies and positive demographic trends. 

“As the US election has shown, surprises can happen anywhere. During this time of high volatility in the markets, we believe it is important for investors to take a long view and not be swayed by the short-term volatility that we will likely continue to see in emerging markets,” Mobius opined.

Read Fin24's top stories trending on Twitter:

donald trump  |  emerging ­markets  |  trade
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