By Rachel Rosenthal
HONG KONG--Stocks and currencies across emerging markets tumbled Wednesday as Donald Trump clinched victory in the U.S. presidential election.
The Mexican peso was the chief sufferer, plunging 9.4% against the U.S. dollar. But other markets were hit as investors looked to reduce risky bets following Mr. Trump's unexpected triumph. South Africa's rand fell 2.3% against the dollar and South Korea's won was down 1.7%, while in equities Taiwan's Taiex dropped 3% and the Philippine benchmark PSEi index was 2.6% lower.
Some emerging-market government bonds were sold off, with yields on Turkey's benchmark 10-year government bond climbing as high as 10.71%, the highest level since February, before falling back later. The yield on a similar bond in South Africa was last at 8.825% compared with 8.660% on Tuesday, while those on 10-year government bonds in Indonesia and Malaysia also rose slightly. Bond yields rise when their prices fall.
"It's been extremely volatile, it's been all over the place," said Ashley Perrott, head of pan-Asia fixed income at UBS Asset Management in Singapore. "Emerging markets would really suffer in that kind of environment" of policy uncertainty, he added.
Still, Europe's emerging markets were less affected by the surprise election result. In Russia, Poland, Hungary and the Czech Republic, currencies have strengthened against the dollar. That is despite the president-elect's desire to rethink the North Atlantic Treaty Organization, a group that many Eastern European countries see asguaranteeing their security against a newly assertive Moscow.
Investors started pulling cash from emerging markets in October, against the backdrop of a growing conviction that the Federal Reserve would soon raise interest rates and as jitters about the U.S. election diminished the appeal of riskier assets.
That marked a turning point after low and negative rates in the developed world had sent billions of dollars into emerging-market stocks and bonds since the beginning of the year.
A key question now facing many emerging-market countries, which rely on access to global markets for economic growth, is whether Mr. Trump will follow through on some of the protectionist rhetoric he used during the election campaign. Mr. Trump could bring more cases to the World Trade Organization, raise import tariffs and renegotiate trade agreements, research firm Capital Economics said in a note.
Mr. Trump's election is "very negative forglobal emerging markets," said Jean-Charles Sambor, deputy head of emerging-market fixed income at BNP Paribas Investment Partners in London. "It's not only about the Mexican peso. There will be negative ripple effects to the asset class."
In Asia, South Korea's export-reliant economy could be particularly hard hit if its cars, electronic parts and gadgets become more expensive for U.S. consumers. If China faces higher tariffs from the U.S., it could also reduce its imports from South Korea as it looks to cut costs by buying more goods from factories at home. Some 26% of South Korea's trade as a percentage of gross domestic product goes to China, according to Andre de Silva, head of emerging-markets rates strategy at HSBC Holdings PLC.
During his campaign, Mr. Trump also targeted U.S. companies that outsource jobs abroad. That could hurt call centers in the Philippines, with so-called business process outsourcing making up 10% of GDP, according to Krystal Tan, Asia economist at Capital Economics.
A shred of relief might be that market volatility could delay any Fed rate increase, with some analysts now taking a December move off the table. A number of emerging-market central banks could try to buoy growth by reducing interest rates, by either moving up plans for further rate cuts or cutting rates more deeply than initially forecast, including in South Korea, Indonesia and India, said HSBC's Mr. de Silva.
Other emerging-market central banks such as Mexico and Turkey could be "forced into defensive interest rate hikes over the coming days" if their currencies continue to weaken sharply, according to Capital Economics.
Despite initial uncertainty, some market participants expect Wednesday's market volatility to be short-lived -- and could even create chances to profit.
"I think most of the selloff would be a buying opportunity," said BNP's Mr. Sambor,who recently increased his allocation to emerging-market currencies and said that the Mexican peso, Brazilian real, Indonesian rupiah and Malaysian ringgit looked cheap.
"We acknowledged the fact that there's some volatility and it's a contrarian call," Mr. Sambor said. "We're prepared to make this kind of call."
Mike Bird in London contributed to this article
Write to Rachel Rosenthal at Rachel.Rosenthal@wsj.com
(END) Dow Jones Newswires
November 09, 2016 07:08 ET (12:08 GMT)
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