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U.S. Elections 2016

Barings’ investment professionals provide insights on how the U.S. presidential election may impact the fixed income, equities, alternatives and real estate markets.

Emerging Markets Debt

The surprise Trump victory injects more uncertainty into the market and we see both opportunities and risks in emerging markets as a result.

One of the main risks that we see relates to global trade. Trump’s pre-election rhetoric suggests that not only is he anti-TPP (Trans-Pacific Partnership) but also that other existing trade agreements could be at risk under his administration. It remains to be seen how much of this rhetoric will turn into policy, but broadly speaking, if the U.S. takes a step toward isolationism, the impact will be negative on emerging markets, which are open economies reliant upon global trade.

When it comes to monetary policy, the pace of future Fed hikes will likely be slower under Trump than would have been the case under Clinton, and in fact, the Fed could be forced to reverse course and cut rates if global trade falls and / or market sentiment deteriorates. If Trump were to give a voice to the fringes of his party who support abolishing the Fed, we would become extremely concerned as we believe the Fed’s role as a “lender of last resort” is a critical counterbalance to the inevitable instability of a capitalist economy.

It’s not all doom and gloom, however. On the positive side, the American system is set up to allow checks and balances. Even during times when presidents have had majorities in the House and Senate, it has not always been easy to pass reforms. Rather than rubber-stamping a president’s proposals, legislators must answer to the constituents who sent them to Washington and whose interests may differ from the president’s. This could make implementing radical reforms difficult.

Additionally, the U.S. economy is broadly in a strong position, which means that the uncertainties associated with a Trump presidency are at least set against a healthy economic backdrop.

Finally, while Mexico has been in the headlines given Trump’s proposal to build “The Wall,” we believe that the market is overpricing the negative potential economic effects that a Trump presidency will have on the country. Ultimately, we believe this could prove to be a buying opportunity in the Mexican peso and in the country’s sovereign and corporate debt issues.

 

Ricardo Adrogué

Head of Emerging Markets Debt

Market Insights

High Yield

We anticipate that high yield issuers will largely weather any short-term volatility ...

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Multi Asset

Trump's victory to have a profound effect on global markets ...

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Emerging Markets Debt

We believe the environment remains a healthy one for emerging markets and we continue to see ...

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Multi-Strategy Fixed Income

The U.S. economy remains in reasonably healthy condition and corporate earnings are fairly robust ...

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Private Equity

We don't expect any one political event, such as the U.S. Election or Brexit, to impact our portfolio ...

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Real Estate

At the end of the day, the fundamentals underlying the U.S. real estate market are sound ...

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Global Equities

The investment case for strong companies is not dependent on the president ...

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Infrastructure Debt

Infrastructure spending in the U.S. was one of the issues that both major parties actually agreed upon...

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Structured Credit

Fundamentals are solid & the direct impact of the election are somewhat limited

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Small Cap Equities

Our focus remains on the fundamentals, following a Trump win ...

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Emerging Market Equities

Uncertainty is the big takeaway from Trump's win ...

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Asian Equities

Despite a change of U.S. leadership our outlook for Asia remains strong ...

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