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The United States’ first emerging-market president: frontier market implications

Summary:
Short everything — everything — east of the Oder until the Russian border, go long whatever the Russian elite will buy when sanctions end, don’t buy Cemex (too easy) — buy European defence contractors — and get out of the Korean won, Saudi riyal and Philippine peso before those countries start being charged for US protection. What else? Here’s more from Exotix, the brokerage, country by country, with a more frontier market bent: BrazilThe lower rates we expect to see with the dovish monetary policy we expect from a Trump Presidency is marginally positive for the sovereign (given the low sovereign dollar debt to GDP), but will have more of an impact in the corporate sector which has borrowed offshore and will face refinancing. A weaker US dollar can hurt the country’s industrial exports

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Short everything — everything — east of the Oder until the Russian border, go long whatever the Russian elite will buy when sanctions end, don’t buy Cemex (too easy) — buy European defence contractors — and get out of the Korean won, Saudi riyal and Philippine peso before those countries start being charged for US protection.

What else?

Here’s more from Exotix, the brokerage, country by country, with a more frontier market bent:

Brazil
The lower rates we expect to see with the dovish monetary policy we expect from a Trump Presidency is marginally positive for the sovereign (given the low sovereign dollar debt to GDP), but will have more of an impact in the corporate sector which has borrowed offshore and will face refinancing. A weaker US dollar can hurt the country’s industrial exports but is positive for Petrobras. Stronger commodities are positive for Brazil’s exports and economic activity. Trump’s win raises the risks of increased trade restrictions, with the US being Brazil’s second-largest export destination.

Iraq
With Trump in charge, American support for Iraq can potentially weaken. The benefit of higher commodity prices for Iraq is therefore balanced against the risk of weaker support from America – and potentially from its DFI partners as well. Given the importance of the next 6-12 months in Iraq’s external financing schedule, we think the net effect of a Trump win is probably negative for Iraq and its US$ bonds.

Russia
One factor which has received considerable attention is sanctions. Trump’s win opens the door to the possibility of a change in stance towards Russia. If that does happen it will be at odds with the current EU stance and may create divisions within the EU which can be exploited by the Kremlin. Our expectations of a weaker US dollar, higher commodity prices and a more dovish Fed is likely to have a positive effect on Russian assets and the possibility of sanction removal could add to the upside. Companies with the potential to benefit the most are those currently under sanctions which include government-linked entities such as Gazprom Neft, Rosneft, VTB, VEB and Sberbank.

Ukraine
We think Ukraine is one country for which a Trump Presidency could raise specific investor concerns. While we think a Trump Presidency raises issues about economic and foreign policy uncertainty in general, Ukraine seems to be singled out. Trump seems to lean more favourably towards Russia than Obama has (and Hillary Clinton would have been expected to), and while the foundations of the Trump-Putin “bromance” may be shaky, it may add to foreign policy uncertainty. Moreover, Trump’s supportive comments over Russia’s annexation of Crimea in particular, and his dismissive approach to NATO in general, may also raise domestic as well as regional concerns. Ukraine would likely still enjoy the support of Western European countries, but weaker US commitment would be negative, and come at a tricky stage of the country’s reform programme. We need to see how this plays out to re-assess the implications on our investment recommendations.

And beyond that — hopefully investors with experience of emerging markets will adapt quicker than most to a president with erratic impulses in place of policy, an obsession with getting his own back on opponents, and a preference for patronage over institutions.

For all the rest, emerging-market political analysts are about to have a glorious four years of business.

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Joseph Cotterill
Joseph is the FT’s Southern Africa correspondent based in Johannesburg, after previous stints as private equity correspondent and on the Lex column. But he still writes for Alphaville, which he joined way back in March 2010 — right in the middle of the Greek bailout crisis. He has been very interested in all things credit and sovereign debt ever since…

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