Emerging Countries like Mexico Fear 'Tariff Man' Trump's Election

[US Election 2024]
Bloomberg "Harris' Victory Will Benefit Emerging Markets"

As the U.S. presidential election approaches, emerging market financial markets are trembling at the possibility of the Republican candidate, former President Donald Trump, winning. Wall Street predicts that only if Democratic Vice President Kamala Harris is elected can emerging markets trigger a rally.

According to Bloomberg on the 3rd (local time), emerging market investors are closely watching whether former President Trump will win, as concerns over tariff promises could trigger widespread sell-offs of emerging market assets.

Wall Street recently forecasted that the Mexican peso, which had weakened due to the rise of the "Trump trade," could plunge further if former President Trump’s victory becomes a reality. This is because Trump has taken a tough stance on neighboring Mexico. He has threatened to impose a 1000% tariff on Mexican cars to block indirect exports by Chinese automakers and has emphasized strengthening border security with Mexico to prevent illegal immigration.

As a result, the Mexican peso exchange rate exceeded 20 pesos per dollar last month, marking the highest level this year (Mexican peso depreciation). The prevailing view is that if Trump wins the election, the Mexican peso could weaken even more.

Investment bank Jefferies warned that if Trump’s victory becomes a reality, the Mexican peso exchange rate could surge to around 22 pesos per dollar. JP Morgan analyzed that only if Democratic Vice President Kamala Harris is elected could the peso fall to 19 pesos per dollar. Bloomberg also forecasted that if Trump wins, Asian currencies such as the Chinese yuan and South Korean won could face additional downward pressure.

Trump’s election is also expected to affect emerging market bond yields. Piotr Matys, chief currency strategist at Intercapital Markets, pointed out that it could be a negative scenario for bonds from NATO countries Poland, the Czech Republic, and Hungary. According to Bloomberg’s data, local currency bonds from Poland, the Czech Republic, and Hungary have already underperformed other bonds since the end of September. Additionally, Bloomberg predicted that El Salvador’s bond yields could rise if Trump enters the White House, as President Nayib Bukele of El Salvador is expected to leverage his relationship with the U.S. Republicans to secure loans from the International Monetary Fund (IMF).

Emerging stock markets are also widely expected to view a Trump victory as negative news. Bloomberg noted that since a 60% tariff on Chinese imports is highly likely, it would pose significant risks to Chinese stocks. Wall Street believes that if the U.S.-China trade war intensifies during a second Trump administration, other emerging market stock markets within the sphere of influence will also be hit. Goldman Sachs stated that stocks of companies headquartered in South Korea, Taiwan, and other countries could face downward pressure due to supply chain disruptions and rising costs.

Bloomberg observed that a victory by Vice President Harris could trigger a rebound in emerging markets. Arif Joshi, co-head of emerging market debt at Lazard Asset Management, said, "It appears the market is partially pricing in the risk of a Trump victory," adding, "This suggests that a Harris victory would be a structural positive for emerging markets."