(Bloomberg) — Donald Trump’s election victory has catapulted U.S. stocks to new records and pushed the dollar to a two-year high. For the rest of the world it is anything but good news.
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Stocks excluding the US are tumbling, with an MSCI gauge surpassing the worst day since the August 5 global crisis. An index of developing world currencies has lost more than 1% after the US election, nearly wiping out this year’s gains. European shares and the euro have flopped.
The sharp divide between US and non-US assets has become clearer as Trump’s Cabinet begins to take shape, with loyalists poised to implement his “America First” proposals dubbed for key posts. That has confirmed investors’ worst fears: that the push for higher rates, especially for China, will gain momentum, alongside a raft of potentially disruptive policies that could drive up inflation and tie the hands of central banks.
Such concerns have prompted investors to park their money in US assets. Fund managers’ exposure to US equities has risen to the highest level since 2013, according to a Bank of America Corp survey. On the other hand, emerging markets such as China and Mexico, often seen as the most vulnerable to Trump’s trade policies, are taking a hit.
Trump’s more domestically focused policies will favor American companies, said Rajeev De Mello, chief investment officer at Gama Asset Management SA. “We reduced risk in the run-up to the US elections, and now is the time to increase portfolio exposure but shift to investments that will benefit from Trump’s expected policy choices.”
Wednesday is shaping up to be another gloomy day, with MSCI’s benchmark Asian shares down around 1% and paving the way for a weak open in Europe. A Bloomberg gauge for the dollar is little changed after hitting its highest since November 2022 during the previous session.
Investors are closely watching the Cabinet appointments for clues as to whether Trump’s campaign rhetoric will translate into policy. The president-elect had previously promised to impose massive new tariffs, envisioning a 20% levy on all foreign goods and 60% or higher on goods from China. That has revived fears of a new trade war that could disrupt global supply chains and hurt companies that rely heavily on U.S. sales.
Trump’s other proposals include mass deportations and tax cuts, which could lead to higher inflation and limit the Federal Reserve’s room to cut interest rates.
While this outlook supports the dollar and puts pressure on emerging market currencies, some central banks, including Bank Indonesia and Banco Central do Brasil, have entered the markets in the past week to support their currencies.
The People’s Bank of China set its benchmark yuan rate higher than market estimates on Wednesday, signaling unease about the currency’s weakness amid the threat of higher U.S. rates.
Read: A guide to Trump’s agenda on day one, from tariffs to immigration
That doesn’t mean there aren’t safe places.
Money managers such as Pictet Asset Management SA are boosting their investments in markets like India, which are considered less affected by Trump’s policies. Punitive tariffs on Chinese goods could also spur a shift in investment from the world’s second-largest economy to Southeast Asia, according to Kasikorn Asset Management Co.
But for now, US assets appear to be the clear winner.
“The theme of ‘American exceptionalism’ still seems to be very much alive,” said Michael Brown, senior strategist at Pepperstone Group Ltd. “I remain confident in the bull case for stocks, especially now that the incoming Trump administration is likely to reinvigorate economic growth and corporate profits through a new round of tax cuts.”
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