Rhetoric from U.S. presidential candidate Donald Trump is particularly disconcerting to managers because of perceptions of an increased protectionist stance, sources say.
Money management executives running emerging markets portfolios said Mr. Trump's comments on trade agreements, should they be realized, could potentially hit their holdings.
Gary Greenberg, head of emerging markets at Hermes Investment Management in London, does expect the other candidate, Hillary Clinton, to make changes. “But ultimately I think she recognizes the importance of trade and of making progress on both the Pacific and Atlantic trade agreements. My guess is she would work toward getting those agreed.”
However, if Mr. Trump should win the election, Mr. Greenberg is worried about his prerogative in imposing tariffs without the need for congressional approval. “He could easily impose 30% to 40% tariffs on China agreements, for example — there are arguments to which (country) would be the bigger loser, but it would certainly be a disaster.”
Hermes Investment has moved to slightly underweight Mexico and China, since a win for Mr. Trump “would be quite a negative event” for both countries. The firm's position was slightly overweight previously on Mexico and neutral on China. “We do have some exposure to a Trump trade war in the portfolio, but we think we probably have less than most — and are just keeping our fingers crossed that it doesn't happen,” said Mr. Greenberg.
Aberdeen Asset Management's emerging markets team has been taking weakness in Mexico as an opportunity.
“We would argue Mexican assets are quite cheap,” said Brett Diment, head of emerging market debt at Aberdeen Asset Management in London. “Most emerging markets assets have rallied quite strongly this year, while the Mexican peso has weakened quite significantly. If (Mr.) Trump does win, even though there is some risk built in, perhaps we will see more weakness and opportunities to add more risk.”
However, emerging markets have moved out several years of weakness and are in a stronger position than they had been, with improved fundamentals. “Emerging markets are in much better shape than three years ago — that might provide some opportunities when the Fed hikes,” he said. The firm runs $11.5 billion in emerging markets debt.
And whichever candidate wins the election, increased infrastructure spending could benefit developing countries. Despite the potential vulnerabilities of emerging markets to a win by Mr. Trump, PineBridge Investments has been “rotating towards select emerging market stock and bond markets, although the presidential elections are not a large factor in this,” said Michael Kelly, New York-based head of multiasset. Both candidates “want to … initiate infrastructure programs,” which would benefit emerging markets countries and markets, he added.