1. Emerging markets tumble as Donald Trump victory signals risks to trade

Emerging markets tumble as Donald Trump victory signals risks to trade

Emerging markets went into a tailspin as Donald Trump’s US presidential election victory fueled concern the world’s largest economy may turn protectionist, jeopardizing benefits flowing to developing nations from trade deals and immigration.

By: | Updated: November 9, 2016 8:43 PM
Mexico’s peso, the currency most vulnerable to Trump’s policies, dropped the most since 1994 on a closing basis as the Republican candidate defied forecasts by winning the race for the White House. (Reuters) Mexico’s peso, the currency most vulnerable to Trump’s policies, dropped the most since 1994 on a closing basis as the Republican candidate defied forecasts by winning the race for the White House. (Reuters)

Emerging markets went into a tailspin as Donald Trump’s US presidential election victory fueled concern the world’s largest economy may turn protectionist, jeopardizing benefits flowing to developing nations from trade deals and immigration.

Mexico’s peso, the currency most vulnerable to Trump’s policies, dropped the most since 1994 on a closing basis as the Republican candidate defied forecasts by winning the race for the White House. The MSCI Emerging Markets Index of stocks headed for the biggest slump since the day after the U.K.’s vote to leave the European Union. Benchmark gauges in Brazil, China and South Korea fell at least 2 percent. Ukrainian Eurobonds dropped the most in nine months.

The declines threaten the best rally in developing-nation equities since 2012 and the biggest gain for currencies in six years as Trump’s campaign pledges to curb immigration and renegotiate trade deals sap risk appetite. Wednesday’s selloff was concentrated in countries such as Mexico, South Korea and South Africa, which are seen as most vulnerable to such decisions.

“It is yet another reminder to the establishment that most electorates are unhappy,” said Simon Quijano-Evans, a strategist at Legal & General Group Plc in London. “The big question now is how protectionist the U.S. will become. The most exposed countries in emerging markets include those that are very open, those that send most of their exports to the U.S., and those that rely on net remittances.”

The MSCI Emerging Markets Index slid 2.4 percent to 880.96 at 9:03 a.m. in New York, paring losses of as much as 3.3 percent after Trump, giving his victory speech, sought reconciliation and cooperation with his political opponents. A loss of this magnitude at close would be the worst since June 24. A gauge of currencies declined 0.8 percent, led by the peso and South Africa’s rand.

The turmoil prompted traders to cut wagers for a Federal Reserve interest-rate increase next month. The market-implied probability of a December move fell to as low as 47 percent, based on U.S. overnight indexed swaps. That compares with 82 percent as of 5 p.m. in New York on Tuesday.

Volatility Surge

* One-month expected price swings in the Mexican peso jumped as much as 52 percent, the most in eight years on a closing basis, signaling that traders are betting on further declines. The measure of turbulence eased to a 31 percent increase later.

* Historical volatility on the MSCI Emerging Markets Currency Index rose for a third day, after falling to a nine-month low last week.

* Swings on the MSCI stocks measure increased for a third day to the widest since August, based on 50-day price moves.

Currencies

The index of emerging-market exchange rates dropped for the first time in three days. The peso weakened 9.7 percent to halt a four-day gain.

South Africa’s rand retreated 2.3 percent and Turkey’s lira declined 1.6 percent, while South Korea’s won lost 1.3 percent. Colombia’s peso slid 2 percent.

Stocks

The MSCI Emerging Markets Index posted the steepest decline since Sept. 12. The measure trades at 12.1 times the projected earnings of its members, above the five-year average of 10.8 times.

India’s S&P BSE Sensex slipped 1.2 percent after Prime Minister Narendra Modi’s government unexpectedly withdrew high-denomination banknotes.

Russia’s RTS Index of dollar-denominated stocks advanced 1.8 percent, the most since Sept. 29, amid speculation that the country’s relationship with the U.S. will improve after Trump’s election.

The Ibovespa slid 2.3 percent in Sao Paulo, ending a two-day rally. The Hang Seng China Enterprises Index fell 2.9 percent. South Korea’s Kospi dropped 2.3 percent and Taiwan’s Taiex lost 3 percent.

Bonds

Ukrainian bonds fell on speculation Trump will be less willing than his predecessor to protect the eastern European nation from Russian aggression. Yields on the country’s Eurobonds maturing in September 2019 surged 78 basis points to 8.57 percent, the biggest increase since Feb. 9. Trump has vowed to improve ties with Russia and review the U.S. position on Crimea.

The premium investors demand to own developing-nation sovereign debt over U.S. Treasuries widened three basis points to 335, according to JPMorgan Chase & Co. indexes.

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