America

Hedge

As another US election nears, developing economies are on edge, watching for what a Trump victory might mean for their trade deals, exports, and currencies. 
Investors from Latin America to East Asia are on guard, waiting to see if Trump’s return could disrupt their already struggling markets with more tariffs and tougher trade terms. And they’re not taking any chances — they’ve started pulling out of emerging-market bonds and selling off stocks, leaving markets shaky.&nbsp; 
With Trump and Harris neck-and-neck in the polls, financial players are scrambling. Hedge funds are hitting the Mexican peso hard, dropping it to its lowest level this year. The Chinese yuan is also down, with the dollar staging its biggest climb in two years. 
This financial positioning tells the whole story: emerging markets are nervous, knowing they could face another wave of sell-offs if Trump takes the win. It’s a risky play, and investors are setting their bets cautiously. 
<h3 id="span-style-font-weight-400-investors-eye-currency-swings-amid-election-fears-span">Investors eye currency swings amid election fears</h3> 
The peso is already showing signs of trouble. Analysts say it could be one of the first to feel the impact depending on who wins. Strategists at JPMorgan, including Gisela Brant and Tania Escobedo Jacob, predict the peso could strengthen if Harris wins, trading at less than 19 per dollar. 
But if Trump wins, Brad Bechtel at Jefferies warns it could weaken, sliding closer to 22 per dollar. “The volatility metric on the peso has hit its highest since the pandemic,” he says, noting that Mexico’s economy is in a tough spot with Trump’s tariffs still on the table. 
Emerging markets across Asia aren’t immune either. The Chinese yuan dropped 1.6% in October, while its one-month implied volatility — basically the level of nervousness around its value — hit a two-year high. If Trump reinstates tariffs on Chinese goods, the yuan and currencies across Asia, like the South Korean won, might also take a hit. 
Bloomberg’s Adriana Dupita <a href="https://www.bloomberg.com/news/articles/2024-11-03/election-anxiety-grips-emerging-markets-as-investors-slash-risk?srnd=phx-economics-v2" rel="nofollow noopener" target="_blank">believes</a> that countries relying on exports or facing high external debt may struggle if Trump’s tariffs push dollar rates higher. It’s a gamble for many, especially as Trump’s trade policies are seen as unpredictable and sweeping. 
<h3 id="span-style-font-weight-400-bond-markets-and-political-ties-on-thin-ice-span">Bond markets and political ties on thin ice</h3> 
The impact of a Trump comeback isn’t limited to currencies. Bonds are taking a beating too. In Latin America, El Salvador’s government debt could benefit if Trump gets back in, giving President Nayib Bukele a possible edge in securing an IMF loan. Ukraine’s bonds, too, are up slightly, as some investors bet a Trump win might accelerate peace talks with Russia. 
“I wouldn’t be surprised to see a knee-jerk negative reaction if Trump is elected,” says Robert Koenigsberger, founder of Gramercy Funds Management, “with everybody freaking out, and then seeing if the approach is more pragmatic.” 
But Trump’s uncertain stance on NATO and his doubts about supporting Ukraine could spell trouble for other countries. Poland, Hungary, and the Czech Republic have seen their local bonds lagging since September. If Trump turns his back on NATO or Ukraine, these countries could be left vulnerable, further weakening their bonds and causing more losses.

Developing economies prepare for possible Trump trade shake-up in financial markets

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