Cape Town
– Despite the rhetoric United States (US) President elect Donald Trump can
achieve positive trade agreements that could benefit emerging markets, said
Mark Mobius, Executive Chairman of Templeton Emerging Markets Group.
“The US
presidential election resulting in a victory for Donald Trump has many
potential implications for markets around the world, including emerging
markets.
“When it
became clear that Trump would emerge the winner, stock markets echoed the shock
many US voters felt. Emerging markets were particularly volatile,” said Mobius
in his blog.
Relations
between the United States and Mexico - Latin America’s second-largest economy -
were a focal point for Trump’s campaign amid promises to build a larger border
wall to reduce immigration and to nullify the North American Free Trade
Agreement (Nafta), which also includes Canada.
Trump’s
victory caused the Mexican peso to plunge to a record low against the US dollar
the day after the election, and Mexico’s equity market likewise declined, along
with most other Latin American markets.
“Although
the global markets are likely to remain volatile for a period of time given the
uncertainty surrounding potential US policies under a Trump presidency,” said
Mobius, “we need to take a step back and realise that much of the rhetoric we
heard on the campaign trail may not result in any concrete action.”
Taking
Trump’s during the campaign at face value, many expect some extreme policies to
be put into place. However, Mobius was of the view that the pessimism may not
be warranted given the nature of the US economy and political system of checks
and balances that remains in place.
“And
certainly, should Trump be able to achieve the type of robust economic growth
he had pledged for his country, we think other nations, including Mexico and
other emerging markets, are likely to benefit.”
Mobius
said he was “not all that shocked” that Trump won the election. “We’ve seen
similar voter disenfranchisement in Europe and other places around the world
which has now manifested in the United States. In particular, many of the
pre-election polls didn’t fully capture the dissatisfaction of Americans living
in economically depressed rural areas of the country.”
Being a
businessman, Mobius said, Trump will likely feel at home engaging in
negotiations with other countries.
“I think
he should be able to reach some trade and investment agreements that will
satisfy both parties. For example, there could be a new relationship and trade
agreement with Russia, given Russia was also a pre-election focal point for
Trump.”
In
addition, Mobius believed there could be positive impacts for a number of other
emerging countries, which were not happy with the blanket and rigid rules of
multilateral agreements.
“There
may be the potential for lower taxes and a more business-friendly environment
in the United States, which in turn could result in more active efforts by US
companies to not only expand domestically but also internationally,
particularly in the high-growth, emerging-markets arena.
If I had
to deliver a message to the new US president, I would ask him to accelerate
free-trade and free-investment agreements with countries all over the
world.”
Mobius
said overall, there are compelling reasons for investments in emerging markets
in general, including high-growth rates, sound fiscal policies and positive
demographic trends.
“As the
US election has shown, surprises can happen anywhere. During this time of high
volatility in the markets, we believe it is important for investors to take a
long view and not be swayed by the short-term volatility that we will likely
continue to see in emerging markets,” Mobius opined.
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