Emerging market stocks and currencies swung between gains and losses as US election tallies suggested the outcome of the presidential vote will be closer than polls had predicted.
The benchmark currency gauge declined 0.3%, led by the Mexican peso and the Turkish lira, after falling as much as 0.8%. The equity index steadied as U.S. stock futures reversed an earlier drop. The offshore yuan, a key barometer of U.S.-China relations, weakened 0.4% after gaining earlier amid speculation Democratic nominee Joe Biden would emerge victorious. The ruble bucked the trend, strengthening 0.6%.
“We are going to see the market continue to swing from joy to sorrow as the exit polls come out for a while,” said Tsutomu Soma, a bond trader at Monex Inc. in Tokyo. The emerging-market proxy assets will see the wildest moves as the vote unfolds, he said.
Stocks have rallied this week amid speculation a Biden victory, and potential Democratic sweep of the Senate and House of Representatives, would allow lawmakers to pass a U.S. stimulus plan and reduce geopolitical uncertainty. The JPMorgan Chase & Co. Emerging Market Volatility Index, a measure of price fluctuations in developing-nation currencies, rose to the highest level since late September on Tuesday.
Almost every major stock market in emerging Asia advanced Wednesday, with the Philippines benchmark index climbing more than 2%. Share trading in South Korea, Taiwan and Indonesia was at least 20% higher than the 30-day average. Volumes on India’s Sensex index were about 60% higher.
Below are some views from emerging-market investors and analysts on the vote outcome so far:
While odds have shifted somewhat toward a win by President Donald Trump, it’s not time yet to revise portfolios, according to Rob Mumford, a money manager for emerging-market equities at GAM Investments in Hong Kong.
“It’s too early to tell which of these outcomes will prevail and we are not short-term traders, so too early to trigger any adjustments in positioning,” he said, adding that a contested election was always the worst-case scenario and could lead to short-term volatility as both the stimulus package and approach to the virus become less in focus.
Asia’s Got Quality
“We’ll go back to what was happening in the last few quarters and three years where a lot of capital flows will favor the U.S. in this environment,” he said. “But within emerging markets, Asia should continue to do OK, because it’s better quality and has domestic growth.”
Focus on Fundamentals
James Thom, an Asia equities manager at Aberdeen Standard Investments is also holding his positive view of Asian stocks regardless of who wins the U.S. election. Be it a win by Trump or Biden, Asia markets are supported by positive fundamentals, he said.
“There’s a more domestic Asia-centric story here that’s to a large extent kind of insulated from the outcome of the U.S. presidential election and that’s what we’ve been focused on,” the Singapore-based manager said. “If we do see volatility in markets around the election, which is obviously highly likely, then for us that’s an opportunity to jump in and potentially buy into market weakness.”
“Ultimately we’re still quite optimistic on emerging markets, especially emerging-market debt,” said M&G Investments’ fixed income director Pierre Chartres. “A Trump re-election might be detrimental in the short term, in some specific countries especially in Asia, but the long term outlook for emerging-market debt seems extremely strong.”
A Biden victory would be a catalyst for EM flows to come back in the local-currency space, he said. If Trump wins there may be less less positive flows into emerging markets in the short term, but over the longer term, “we still think valuations are relatively attractive in favor for a lot of EM currencies.”