With just a few weeks before Election Day, investors, market observers and pundits are still mulling the ramifications of potential victories by either Democratic nominee Hillary Clinton or Republican challenger Donald Trump on various asset classes.
As is widely known, Trump’s hostile rhetoric towards Mexico has been seen as a drag on Mexican stocks, implying that emerging markets investors might favor Clinton.
On Monday, a day after the second presidential debate, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), which holds broad range of companies in Mexico, jumped 3.8% and SPDR MSCI Mexico Quality Mix ETF (NYSEArca: QMEX), which tracks a more customized basket of Mexico stocks that were selected based on metrics like value, quality and low volatility, gained 3.0%. Both EWW and QMEX are now trading back above their 50- and 200-day simple moving averages.
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Trump has questioned NAFTA and free trade, vowed to add tariffs on Mexican imports, pledged to deport millions of undocumented immigrants and wanted to build a border wall to keep out Mexican immigrants, adding to price volatility in the Mexican peso in recent months. The peso was one of the most undervalued emerging market currencies in recent weeks and has acted as a bellwether of developing market sentiment to the likelihood of a Trump presidential win.
Trump has exhibited strong protectionist rhetoric on international trading, vowing to renegotiate some trade agreements in his “America First” platform. Consequently, many emerging countries, notably those involved in the Trans-Pacific Partnership, could suffer under a Trump administration focused on protecting American industries.
After the first debate in September, many judged Clinton came out ahead, which helped benefit Asian Pacific markets, such as the iShares MSCI Indonesia ETF (NYSEArca: EIDO) and Market Vectors Indonesia Index ETF (NYSEArca: IDX), which target Indonesian markets.
“Our analysis is based on the varying degrees to which different markets are sensitive to factors such as global risk sentiment, US monetary policy, economic implications, and geopolitical considerations. In FX, the Mexican peso (MXN) features prominently as the biggest winner, while the Russian ruble (RUB) is likely to benefit the least. In rates, a Clinton win is generally seen as risk-friendly, and we expect more scope for rates to rally where there are higher correlations with FX via the sentiment channel (Turkish lira (TRY), Brazilian real (BRL), Indonesian rupiah (IDR)). In sovereign credit, geopolitics is a weighty concern and we highlight Mexico, Russia, and Turkey among the main countries affected,” according to a Societe Generale note posted by Dimitra DeFotis of Barron’s.
SEE MORE: Emerging Markets ETFs Have More Room to Run
Commodities prices are rebounding, in turn bolstering some emerging economies, such as Russia, Brazil and other Latin American nations that are represented in diversified emerging markets ETFs. Still, some market observers acknowledge emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term.
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