(Bloomberg) — Emerging market assets rose Thursday as optimism about China’s stimulus prospects pushed stocks higher, even as traders readjusted their expectations in the wake of Donald Trump’s U.S. election victory.
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The Republican victory fueled tariff threats to developing economies, adding to volatility in markets already preparing for today’s US Federal Reserve decision.
The election results initially shocked emerging markets, with the MSCI stock index taking its biggest hit in a week on Wednesday and 10 of the 23 currencies tracked by Bloomberg posting losses of 1% or more against the dollar. But the calmer sentiment returned the next day. MSCI’s developing markets index rose 0.7% in early European hours, led by Asian stocks such as Meituan, Tencent Holdings and Taiwan Semiconductor Manufacturing Co.
In currencies, the offshore yuan bounced back from its sharpest plunge since 2019, triggered by Trump’s victory. Chinese state banks stepped in, traders said, selling dollars to stabilize the yuan. The Korean won and the Indonesian rupiah also advanced. The South African rand, highly sensitive to China’s fortunes, emerged as a high on Thursday, benefiting from an expected stimulus boost.
Investors are now waiting for possible fiscal stimulus as China’s legislative session ends on Friday, hoping for new steps to offset the impact of any tariffs. Optimism rose as China’s October export data showed a rapid acceleration – the fastest since July 2022, and higher than any economist had forecast.
The US Federal Reserve’s interest rate decision will become clear in the second half of the session. Fed officials are widely expected to cut the key rate by 25 basis points, following a half-point cut in September. Yet the trajectory after today remains uncertain.
“Much of what Trump is proposing is inflationary, more so in the U.S. than internationally, which could disrupt the Fed’s easing cycle,” said Brendan McKenna, a strategist at Wells Fargo & Co. in New York. “A less aggressive Fed rate cut should act as a tailwind for the dollar,” he said.
Among emerging market central banks, Czech policymakers are likely to push ahead with an eighth consecutive rate cut as weak economic growth outweighs concerns about inflation risks for now. Before the week ends, Peru’s rate setters are likely to cut the country’s borrowing costs by a quarter of a percentage point to 5%, with inflation hovering around the midpoint of the target range of 1% to 3%.
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