By Todd Shriber via Iris.xyz

Domestic elections have a way of spurring ideas pertaining to domestic investments. Following the midterm elections on Tuesday, Nov. 6, analysts and market pundits bandied about ideas ranging from Treasuries to domestic bank and healthcare stocks, among others.

With the MSCI Emerging Markets Index down 11.65% year-to-date (as of Nov. 7), emerging markets equities may not be the first idea coming to investors’ minds following the midterm elections, but the idea may have some merit.

Congress is now divided with Democrats controlling the House and Republicans in charge of the Senate, meaning President Trump may have to sound a more diplomatic tone on trade deals. Relaxing trade tariffs could weaken the dollar, potentially lifting emerging markets equities in the process. Trump and Chinese President Xi Jinping meet at the Group of 20 summit later this month, sparking some optimism that the meeting will result in relaxed tariffs by the two sides.

“But even if trade threats don’t fully fade, emerging markets could find relief elsewhere,” reports Bloomberg.1 “For instance, the partisan divide will probably quash Trump’s hopes of passing another round of tax cuts to the wealthy and lead the Federal Reserve to slow its pace of interest-rate hikes, according to Edwin Gutierrez, a money manager at Aberdeen Standard Investments in London.”

Dollar Dilemma

As the chart below of the U.S. Dollar Index (red line) and the MSCI Emerging Markets Index (blue line) indicates, the stronger dollar has been a major drain on emerging markets stocks this year.

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