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Emerging market stocks are set for their worst monthly decline since January.
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The slump comes as investors estimate a higher chance of a Trump victory in the upcoming US elections.
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Trump has promised to drastically increase import tariffs by up to 20%, and up to 60% for China.
It’s been a tough month for emerging market stocks, as the chances of an election victory for Donald Trump increase – and with them the chances that his proposed tariff plan will actually see the light of day.
Emerging market stocks are on track for their worst monthly decline since January, with the MSCI Emerging Markets Index falling for a fourth day on Thursday, down 3.1% this month.
A select number of emerging stocks have taken the biggest hit, with Samsung, Alibaba, Tencent and Meituan accounting for more than half of the index’s decline.
The decline comes as market prices increase the likelihood of a victory for former President Donald Trump with just two weeks until the election.
On the crypto betting market Polymarket, Trump’s odds of winning rose to as high as 66% on Tuesday, the highest since President Joe Biden was still in the race in July. The odds are now slightly lower, at 62%.
The polls, meanwhile, are much closer, with the most recent national polling average compiled by RealClearPolitics showing Harris at 48.7%, compared to 48.5% for Trump.
Trump has proposed raising tariffs on imports from all countries to as much as 20% and has said imports from China would be subject to a 60% tariff.
Investors’ fears of a damaging trade war are not unfounded. In 2018, Trump’s trade war with China led to significant underperformance against US stocks, and strategists say the election outcome is once again pushing investors away from emerging market stocks as uncertainty increases.
“The US election has become a major driver of uncertainty as risk positioning is clearly fluctuating towards a more cautious stance. In our recent client interactions, we have noticed that global emerging markets investors’ willingness to increase risk budgets in the coming weeks may have weakened significantly .’ Citi analysts wrote in a note last week.
The strategists note that the latest sentiment is in stark contrast to a month ago, when investors were pricing in higher odds of a Harris win.
“There has been a significant change in investor sentiment, and investors’ risk budgets have likely changed as a result.”
Other factors, such as rising geopolitical tensions in the Middle East and a bond market sell-off, are also driving investors away from riskier assets. Investors are also expressing disappointment over China’s stimulus measures, which initially fueled a rally in emerging market stocks last month.
Read the original article on Business Insider
