The recent volatility in emerging markets stocks has been attributed to the increasing likelihood of a Donald Trump victory in the upcoming US election. As Trump has pledged to implement significantly higher import tariffs, investors are growing wary of the potential impact on global trade.
The MSCI Emerging Markets Index is facing its worst monthly decline since January, with a 3.1% drop this month alone. Key players in the index such as Samsung, Alibaba, Tencent, and Meituan have taken a considerable hit, contributing to over half of the overall decline.
Investors are closely monitoring the odds of a Trump win, as reflected in the soaring percentages on crypto betting markets like Polymarket. Trump’s odds have risen to 66%, indicating a growing concern among investors about the implications of his proposed tariff plans.
The possibility of a damaging trade war has investors on edge, reminiscent of the trade tensions between the US and China in 2018 that led to underperformance in emerging markets stocks. With uncertainty surrounding the election outcome, investors are wary of taking on excessive risk in the current market environment.
Analysts from Citi have noted a shift in sentiment among global EM investors, with a more cautious approach being adopted in light of the upcoming election. Factors such as escalating geopolitical tensions and a bond market sell-off are adding to the uncertainty, further pushing investors away from riskier assets.
In conclusion, the evolving landscape of the US election and its potential impact on global trade dynamics are driving investor sentiment in emerging markets. With uncertainties looming, investors are being advised to tread cautiously and reassess their risk appetite in the face of rapidly changing market conditions.