Trump’s infrastructure plans may benefit some emerging market economies

28th November 2016

Local Currency Emerging Market Debt sold off by 7.8% after the election of Donald Trump to U.S. president. However, Van Luu, Head of Currency and Fixed Income Strategy at Russell Investments thinks that the rise in U.S. Treasury yields, which is detrimental to such debt, will slow down significantly.

“The president-elect’s economic policies are not universally detrimental to the economic prospects of emerging market countries. His plans for increased infrastructure spending may even benefit economies that mainly export raw materials, like Brazil, South Africa or Russia.

Trade policies have the greatest potential long-term effect and are more likely to impact countries which mainly export manufactured goods to the U.S. Mexico is one country that may suffer from protectionism, but the commodity exporters like Brazil, Russia and South Africa may even benefit from a reflationist president emphasising greater infrastructure spending.”

U.S. Treasuries are heavily oversold

Threat of protectionism and rise in Treasury yields drove EM sell off, not global risk appetite

US reflation historically benefits emerging markets

Greater restrictions on international trade – the winners, and the losers

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