Making Sense of Trumponomics

He might not be President yet, but investors have delivered their verdict on what’s in store for the rest of the world when Donald Trump moves into the White House. Last week saw the second largest outflow from emerging market bonds since 2002 and this year’s developing nation stock rally has slipped into reverse. What should investors be doing at this point? We spoke to Neil Brown, the head of Investor Development at Actis – a money manager looking after $6 billion of assets in diverse industries across Asia, Africa and Latin America.

Gavin Serkin: Last week saw the second largest outflow from emerging market bonds since 2002, halting this year’s rally across stock and bond markets. Many analysts expect worse still to come. Trump’s plan to spend billions of dollars on roads, bridges, and airports. This is pushing up America’s cost of borrowing. As we know the U.S. Treasury yield is the benchmark for worldwide financing. So this is a trigger, this massive rise in bond yields and a plunge in stock prices from Latin America to Africa. Emerging market bond yields are up 30 basis points since the November 9 election relative to U.S. Treasuries, and the benchmark for the equities market, the MACIEM Index, has lost 6%.

Neil Brown: One could say that after the recent round of political upheaval, one might make the case that emerging markets or growth markets are less risky. I think the nature of the risk is different. I would say the [emerging] markets were much more coupled to developed markets 20 years ago, and to the U.S. particularly.

I think what you see now is a much more nuanced macroeconomic view. You’ll see there are countries in Africa – Cote d’Ivoire and Kenya as an example – that are growing strongly. Others, such as South Africa and Nigeria, are more challenged. So, that is a picture that perhaps 20 years ago you wouldn’t have seen in quite so stark relief. I think these days, you do see a lot more reform, which, in turn, has partly decoupled those economies. I think one of the things that is fantastic about emerging markets is there is so much opportunity, but it’s fundamentally still driven by two things – strong demographics and long-term growth.

Listen to the full interview with Neil Brown here:

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