Real depreciates and emerging economies suffer after Trump wins

Political revival Donald Trumpwho will resume office as US President on January 30, is also putting pressure on international markets, especially impact on developing economies. Financial experts predict the Republican leader will push global dollar strengthening and his policies may lead higher borrowing coststhat is, higher rates on debt not only in the United States, but also in other countries.

Evidence of this perception is that in this environment currencies of developing countries are devalued against the North American dollar. The Mexican peso is leading the decline as investors dump those positions to demand the dollar or U.S. currency-backed assets.

With great influence in the region – and therefore in the Argentine economy – In Brazil, the dollar rose 0.6% to 5.78 reais at 11 a.m. per unit, maximum since March 9, 2021 (5.87 reais per dollar), with an increase of 5.8% in October and 18.6% in 2024.

On a day of turbulence in the domestic and foreign markets This Wednesday the dollar in Brazil reached 5.78 reais. per unit, which is the highest since March 2021. The devaluation of the real also led to a fall in shares on the Sao Paulo stock exchange, where the Bovespa index fell 1.3 percent.

The financial market was influenced by both national and international factors. On the global market, Latin American currencies – with the exception of the Argentine peso – have depreciated greatly due to speculation about the political future of the United States. With the victory of Republican candidate Donald Trump, a new round of trade tariff hikes will strengthen the dollar across the planet. In addition to the real one, the Chilean peso and the Colombian peso registered a significant devaluation,” he said. Jornal do Brasil.

“Be careful about the devaluation of the Brazilian currency, Brazil’s deficit is 6.9% of GDP; “Argentina has a surplus of 0.5% of GDP and the only talk is about when the Argentine government will raise inventories,” commented an economic analyst and market adviser. Salvador Di Stefano.

This devaluation of the real also reduces Argentina’s competitiveness from a foreign exchange perspective, since Brazil is Argentina’s main trading partner. As a result, the bilateral real exchange rate index measured by the Argentine Central Bank stood at 5 on Tuesday. 76 points, based on a theoretical balance of 100 points.a minimum comparable to the closure of the government of Alberto Fernandez. To find such a negative bilateral exchange rate, you would have to go back to December 16, 2015when the figure reached 72.8 points, the day before the elimination of exchange controls at the beginning of the presidency Mauricio MacriWith Alfonso Prat Gay as Minister of Economy.

In any case, the die is not necessarily cast for Argentinawhich, in a rigorous process of fiscal adjustment, inflation reduction and economic deregulation, has witnessed rapid rise in prices for its bonds sovereigns, a reduction in country risk and a significant rise in their equities, which outperformed major global markets for the third year in a row.

This Wednesday too raw material prices are fallinga pillar of Argentina’s commercial matrix. soybeans fell 1.2% in the Chicago marketsoybean meal – Argentina’s main export product – deducts 1.4%; wheat fell by 0.9%, corn – by 0.4%. Gold, which hit record prices this week, fell 3% and oil fell 1.4%.

Martin Mazzadirector of MM Investments, explained that “Donald Trump’s victory in the US elections and Republican control of the Senate, and possibly both houses, have had a strong impact on global markets. Speed Treasury 10-year bonds rose nearly 20 basis points, lifting the US dollar against developed currencies and especially emerging market currencies. In this context, Argentina’s global bonds also opened higher in their first overseas transactions.

“Expectations of an expansionary fiscal policy in the United States with possible tax cuts and increased spending contributed to the rise in Dow Jones, S&P 500 and Nasdaq futures, which rose 3.1%, 2.2% and 1.6%, respectively. This could further strengthen the Treasury rate, encouraging flows to migrate to the United States and consolidating a stronger dollar to the detriment of other currencies. Trump’s style of communication on social networks could increase bond volatility, playing in favor of equities in the market in the midst of a global reconfiguration,” Martin Mazza calculated.

Emerging markets have been hit hard by forecasts of US trade protectionism starting in 2025. BloombergMexico led the currency crisis, with the Mexican peso, often seen as most vulnerable to Trump’s trade policies, falling as much as 3.5 percent. Eastern European and South African currencies lost at least 1.9%, marking the worst day for the emerging market currency indicator since February 2023. Chinese stocks in Hong Kong fell more than 2.5% while traders were hit with punitive tariffs for the world’s second-largest economy.

It happens that Trump promises stricter import restrictions immigration is already fueling bets on higher borrowing costs in the United States and a stronger dollar, and obviously reduces the attractiveness of risky assets.

“It was Trump’s trade war against China during his first term that stunted the rise of emerging market stocks and led to the underperformance of the US economy that continues to this day. “His signals of expansionary fiscal policy, which is considered inflationary, could undermine the Federal Reserve’s ability to reduce borrowing costs, and this effect could have consequences for developing countries,” he assessed. Bloomberg

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“The Trump presidency will impose harsher and broader tariffs than during the previous Trump administration,” with China being targeted by more countries than others, he commented. Rajeev De MelloChief Investment Officer of Gama Asset Management. “An expansionary fiscal policy will lead to higher bond yields, especially bonds with longer maturities, resulting in a double whammy for emerging markets from a stronger US dollar and higher US yields.”

The Federal Reserve’s long-awaited interest rate cut also disappointed those who had hoped it would fuel a recovery in emerging markets. The election results “open the door to a stronger U.S. dollar, higher real rates in the United States and tariff policies that disproportionately hurt emerging market exporters,” he said. Bloomberg Ed Al-Husseinistrategist from New York-based Columbia Threadneedle. “We are likely to see even more weakness in asset classin local rates, currencies and high beta loans,” he stressed.