Trump May Hurt Emerging Debt in China, Mexico, Aberdeen Saysby and
Globalization pace may slow if Trump elected, Amstad says
Emerging dollar bonds have returned 11.2% this year: index
A Donald Trump presidency could hurt bonds in emerging markets such as China and Mexico by weighing on global trade, according to Aberdeen Asset Management Asia Ltd.
The Republican nominee, who faced Democratic opponent Hillary Clinton in their first debate, has proposed protectionist measures including placing punitive tariffs on Chinese imports and building a wall on the U.S. border with Mexico. Trump is behind Clinton by just 1.6 percent in the The Real Clear Politics average of national polls. The narrowing Clinton-Trump spread has already contributed to a drop in prices of Treasuries, seemingly benefited the dollar and hurt emerging-market currencies, according to Societe Generale SA.
Near-zero percent interest rates in the U.S., Europe and Japan have sparked a hunt for yield and prompted investors to plow money into riskier assets. In the debate, Trump targeted the Federal Reserve and said its policy of keeping rates low was politically motivated, a claim Fed Chair Janet Yellen has repeatedly denied. Dollar bonds from issuers in emerging markets have returned 11.1 percent this year, the most since 2012, according to Bank of America Merrill Lynch indexes. A Trump victory in November could turn the tide, according to Donald Amstad, a director at Aberdeen Asset Management.
“China has been a huge beneficiary of globalization and if Trump gets elected I don’t think globalization will continue to increase at the same pace as before,” Amstad said. “Trump represents the American workers who have lost their jobs to Chinese workers."
Trump lashed out at trade with China and Mexico in the debate as he has throughout the campaign. He said the U.S. was being put at a disadvantage. China, he said, is “using our country as a piggy bank.’’
Clinton’s message has been more complicated, even as she has taken positions that also could weigh on commerce. She has rescinded her affection for the Trans-Pacific Partnership she supported as Secretary of State, and is now pledging to appoint a “chief trade prosecutor,” triple the number of enforcement officers and review existing agreements.
Amstad declined to comment on the effect of a Clinton victory on emerging-market bonds.
Another risk is if a buoyant U.S. economy pushes the Federal Reserve to raise interest rates more rapidly, Amstad said. The Fed left interest rates on hold last week but that decision drew dissent from three voting members of the Federal Open Market Committee -- the first time that’s happened since 2014.
“If wages in the U.S. surge, creating inflationary pressures, the Fed may need to raise rates aggressively,” said Amstad. “This may be a difficult time for emerging markets.”