Weekly Buzz: 🌏 The US election is over – what’s next for emerging markets?

5 minute read

The dust has settled on the US election, and investors are processing what comes next – particularly for emerging markets (EMs). Initial reactions have been cautious, largely due to the president-elect's proposed trade policies – including a 10% minimum tariff on all imports and a striking 60% tariff on Chinese goods. But it’s worth taking a closer look.

So, China?

While increased trade tensions between the US and China seem likely, it's worth considering how this might play out in practice. Whether the new president actually pursues the more aggressive policy of imposing 60% or higher tariffs on all Chinese imports to the US remains to be seen, given the potential for retaliatory measures from China.

It’s likely we’ll see some dealmaking. Trump acknowledged that in his book, The Art of the Deal, touting the importance of “never getting too attached to one deal or one approach”. While his more controversial ideas may have helped grab voter attention, in practice, you can expect some watering down to happen.

More importantly, China isn't just standing still. Days after the US election, Beijing announced a massive $1.4 trillion stimulus package aimed at restructuring local government debt, with China’s finance minister hinting at further "countercyclical adjustments" to come. This stance isn't new: even before the election, China had begun shifting toward more pro-growth policies – the vote is likely only to redouble the resolve of Chinese policymakers.

And what about the rest of the EMs?

For EMs beyond China, the picture is more balanced than initial reactions suggest. The president-elect's looser fiscal policy and potential tax cuts aimed at "re-industrialisation" should boost US growth. And – through increased exports – that could be a rising tide that lifts most economies, even if higher tariffs partially dampen the effect.

There's more: if aggressive tariffs primarily target China, trade could be diverted to other EMs (our Simply Finance below explains this). This might also accelerate corporate efforts to diversify global supply chains beyond China – which, again, could benefit other EMs.

Perhaps most importantly, many EMs have powerful, long-term growth drivers that operate independently of US politics. Large populations with rising incomes, improving technological capabilities, increasing industrial investment, and a growing corporate culture focused on shareholder returns will continue to drive growth – regardless of who occupies the White House.

What’s the takeaway here?

While the new US administration could present challenges for EM economies, the reality may prove less dramatic than headlines suggest – especially if we look at the data. Earnings and valuations are perhaps the biggest trump cards (pun intended) that EMs have right now. Their stocks are projected to deliver stronger earnings growth while being cheaper compared to their developed market (DM) counterparts.

The key is going for an investment approach that works for you – something that you can stick to. A broadly diversified strategy, like our General Investing portfolios, provides an amount of exposure to EMs that’s balanced against developed market assets. But for those looking for a more active stance, our Flexible Portfolios let you fine-tune your own exposure – whether to specific markets like India and China, or EMs as a whole.

This article was written in collaboration with Finimize.

🎓 Simply Finance: Trade diversion

Trade diversion happens when barriers like tariffs cause businesses to shift where they import from, rather than stopping entirely. Think of it like shopping at different grocery stores – if your usual place suddenly raises prices, you’d probably think of just switching to another. In global trade, this creates new opportunities for countries that can step in as alternative suppliers.