Emerging markets root for Biden in US elections

As they wait for the results of tomorrow’s US elections, most investors and business communities in emerging markets around the world are rooting forJoe BIden. Nobody denies that the COVID-19 pandemic has been largely responsible for this year’s net outflows of $25.8bn and $9.2bn from emerging-market equity and bond funds respectively, but there is nevertheless a broad consensus that most EMs will have an easier ride under an administration that is less in thrall to Trump’s ‘America First’ mantra.

The Biden camp is certainly making the right noises. Although he may not be about to extend the hand of friendship to Beijing,  Biden is equally unlikely to escalate the US-China trade war any further than it already is. He has also indicated that he would make significant changes to US foreign policy, and many take this to mean that he would immediately reverse Trump policies on Iran, climate change and the World Health Organization.

As far as emerging markets are concerned, however, it is the effect that a Biden victory is expected to have on the dollar that has placed them behind the Democratic Party. Historically, emerging market have benefited from a weak dollar as investors have tended to pull money out of the US and put it into economies where the returns of local currency-denominated equities and bonds look better in dollar terms. If Biden wins the US elections, his party takes control of Congress and then pushes through its coronavirus relief package, it will increase the government’s borrowing by  several more trillions of dollars. If that turns out to be the sequence of events after tomorrow’s vote, the US currency could start sliding sooner rather than later.