The U.S. presidential election holds significant importance not only for the country itself but also for global financial markets. Emerging markets (EMs) are particularly affected by the outcome of the election due to the U.S.’s position as the largest economy in the world. This influence extends beyond borders, shaping global financial conditions through policies on growth, trade, and international relations.
UBS analysts have highlighted several ways in which the 2024 election could impact emerging markets. The U.S. macroeconomic landscape, trade strategies, and geopolitical relationships are key factors. Emerging market assets are closely linked to expectations surrounding the U.S. economy, including factors such as GDP growth, inflation, interest rates, and the strength of the U.S. dollar. Depending on the election outcome, these conditions could shift significantly.
A Republican victory, for example, could lead to stronger U.S. economic growth but also result in higher inflation and interest rates. While this may initially strengthen the U.S. dollar, it could pose challenges for emerging markets. A stronger dollar raises the cost of borrowing for EM countries, many of which have significant dollar-denominated debt. This tightening of financial conditions could deter foreign investment and slow down economic growth in these markets.
Trade policy is another critical channel through which the U.S. election could impact emerging markets. Presidents have the power to shape the country’s commercial relationships, and tariffs have become a prominent policy tool in recent years. A Republican administration, particularly under Trump, may adopt tariff-heavy strategies that increase uncertainty and reduce the appeal of emerging market assets. On the other hand, a Democratic administration might favor more multilateral trade policies, potentially reducing trade tensions.
Geopolitics also play a significant role in shaping the impact of the U.S. election on emerging markets. Relations with key global players such as China, Mexico, Argentina, Venezuela, and Russia could evolve considerably based on who wins the presidency. Former President Trump’s use of tariffs as a trade policy tool and isolationist approach could raise the stakes for emerging markets. Shifts in U.S. immigration or trade policies could lead to heightened volatility in regions such as Latin America and Asia.
In Latin America, for instance, Mexico and Argentina could be affected differently based on their relationships with the U.S. While Mexico may see heightened volatility, Argentina might benefit from strong ties with Trump. U.S.-China relations are expected to remain challenging regardless of the election outcome, driving investors towards other markets such as Taiwan and South Korea. India, with its growing role in global supply chains, could attract further investment interest.
The U.S. presidential election has far-reaching implications for emerging markets. The macroeconomic landscape, trade policies, and geopolitical relationships are key areas that could be significantly impacted. It is essential for investors and policymakers in emerging markets to closely monitor the outcome of the election and prepare for potential changes in the global financial landscape.