Nov 5, 2020
What Biden with a Republican Senate would mean for emerging markets
Potential split government shows 'trades have reversed themselves' - Equity Strategist
A Joe Biden presidency, checked by a Republican-controlled Senate, may be just what the doctor ordered for emerging markets.
While the Democrat is seen pursuing policies conducive to trade and the environment, he may be held back by a divided Congress from pushing through a fiscal bazooka. That means more exports and faster growth for developing nations, as well as a boost for riskier assets from a more accommodative Federal Reserve, according to investors and analysts.
Here’s what they had to say:
Charles Robertson, chief global economist at Renaissance Capital in London
It’s arguably the best news since the taper tantrum of 2013 and commodity price collapse of 2014 hit many in emerging markets so hard. EM debt and currencies should perform very well. The big problem in recent years was dollar strength driven in part by Trump’s protectionism. Fewer trade wars should reduce the bid for dollars, allowing currency appreciation, and improving external debt ratios to gross domestic product
Charles Diebel, money manager at Mediolanum International Funds in Dublin
It means that you have a president who is more normal in his approach to trade. EM is supported by its correlation to weaker USD, so it is good for exports. With U.S. Treasuries likely to be in a range, it allows EM to adopt a slightly more dovish tone and will see inflows on a yield pick-up basis
Simon Harvey, a foreign-exchange analyst at Monex Europe in London
“You will see some currencies outperform -- notably the Mexican peso and Chinese yuan -- from a reduced trade risk. We’ll see a marginal boost to risk appetite. EM currencies will also receive some tailwinds from lower U.S. yields and protracted expectations of the Fed normalizing policy. This favors the rand and Latam currencies
Magdalena Polan, global emerging-market economist at Legal & General Investment Management in London
I would expect less headline risk and lower volatility. I would expect President Biden and his team to be more predictable than Trump, and more prone to multilateral approach. But attempts to limit China’s impact on the U.S. economy will likely continue as they have bipartisan support
Daniel J. Grana, emerging-market equity fund manager at Janus Henderson Investors in Boston
Given likely Republican obstruction in the Senate, U.S. fiscal policy will be a lot less stimulative in the short term. It will also be less stimulative in the long term as a Green New Deal and meaningful infrastructure investment are both less likely to happen. As a result, U.S. growth trajectory will be more modest than under a blue wave scenario. U.S. trade policy will shift. Trump is a unilateralist whereas Biden is a multilateralist.
Christian Wietoska, strategist at Deutsche Bank AG in London
EM currencies tend to react negatively to U.S. policy uncertainty. We have not yet given up on the prospects of high beta EMFX performance before New Year. Valuations and positioning remain highly attractive and a lack of U.S. fiscal stimulus increases the risks of a dovish Fed in December