Emerging Markets and the Upcoming US Election

Investing.com — Analysts at JPMorgan Chase (NYSE:JPM) believe investors may find a “more sustained opportunity” to invest in emerging market assets once the risks of the upcoming US election are resolved.

Currently, analysts prefer to “fade the bounce” — that is, trade against the recent rebound in emerging market equities. This rebound followed China’s announcement of new stimulus measures aimed at boosting its economy.

Despite the recent stimulus, JPMorgan analysts caution that more action is needed to address growth concerns. They noted that the monetary support provided may be less effective compared to fiscal measures in strengthening final demand.

The analysts pointed out that after Donald Trump won the 2016 election, emerging market assets underperformed developed markets by 10% over two months, highlighting a significant sell-off.

As the race between Trump and Democratic candidate Kamala Harris enters its final weeks before the November 5 vote, polls show Harris has only a narrow lead. The two candidates are also closely matched in crucial swing states.

If Trump wins, analysts warn that his proposed steep import tariffs, particularly a 60% tariff on Chinese imports, could hamper emerging market assets, especially in a scenario where Republicans control both the White House and Congress.

This risk includes inflationary impacts from tariffs on other countries and a potentially stronger US dollar, which may lead to the selling of emerging market assets.

Conversely, a victory for Harris and a divided Congress could result in a more sustainable performance for emerging market assets. Harris has criticized Trump’s tariff plans as a form of a “sales tax” but has not openly rejected President Biden’s measures to expand tariffs on items like steel and electric vehicles from China.