The possibility of a Donald Trump victory in the upcoming US election is sending shockwaves through emerging market stocks, causing them to plummet in their worst monthly performance since January. The looming threat of Trump’s proposed tariff plan, which could unleash a damaging trade war, is the primary driver of this market anxiety.
The MSCI Emerging Markets Index, a key benchmark for emerging markets, has witnessed a consecutive four-day decline, culminating in a 3.1% drop this month. This downturn is heavily influenced by the performance of major companies like Samsung, Alibaba, Tencent, and Meituan, which account for over half of the index’s decline.
As the election nears, the market is increasingly pricing in a Trump win. According to Polymarket, a cryptocurrency-based prediction platform, Trump’s odds of winning surged to 66% on Tuesday, reaching their highest point since July when President Joe Biden was still in the race. While these odds have slightly receded to 62%, they still indicate a significant shift in market sentiment.
The prospect of Trump’s proposed tariff plan, which entails raising tariffs on imports from all countries by up to 20% and imposing a steep 60% tariff on imports from China, has sparked investor fears of a potentially disastrous trade war. Citi bank analysts have pointed out that the election’s outcome is causing investors to withdraw from emerging market shares due to the heightened uncertainty. This anxiety is further fueled by other factors, including escalating geopolitical tensions in the Middle East and a sell-off in the bond market, prompting investors to steer clear of riskier assets.
The potential return of Trump’s aggressive trade policies is generating unease among investors. His proposed tariff plan could lead to a damaging trade war, particularly with China, which could severely impact global trade. This, combined with rising geopolitical tensions and a weakening bond market, is driving investors away from riskier assets, including emerging market stocks. The uncertainty surrounding the election’s outcome only exacerbates these concerns, creating a volatile environment for investors navigating the global market.