The US presidential election is a significant event that impacts international financial markets and has a significant impact on emerging market (EM) economies that extend well beyond US boundaries.

The United States, as the largest economy in the world, influences worldwide financial circumstances through its growth, trade, and foreign relations policies.

UBS analysts have delineated many pathways by which the 2024 election may impact developing markets, primarily via modifications to the U.S. macroeconomic environment, trade policies, and geopolitical alliances.

Assets in emerging markets are strongly correlated with forecasts for the US economy. Depending on the outcome of the election, variables including GDP growth, inflation, interest rates, and the value of the US currency might change.

For instance, a Republican-led government may boost economic expansion in the United States but also raise interest rates and inflation. Although these circumstances would initially make the US currency stronger, developing markets might find it difficult to adjust.

Stronger dollar historically means higher borrowing costs for developing nations (EM), many of whom have large debt in US dollars. These markets' economic growth may be slowed and foreign investment may be discouraged by the tighter financial conditions.

Due to the uncertainty around potential changes in U.S. leadership, emerging market assets have historically seen brief ups and downs in value around U.S. elections. One crucial consideration is the value of the dollar, which is a significant factor.

Approximately 60% of all foreign exchange reserves are held in US dollars. Additionally, the nation has the biggest and deepest capital markets in the world, according to a report from UBS analysts.

The demand for products and services from developing nations may be boosted by greater U.S. economic development, but financial headwinds such as rising interest rates and the value of the dollar may restrict the possibility of additional investor interest.

Another important way that the US election may affect developing economies is through trade policy. Presidents of the United States have significant influence over the nation's trade ties, and tariffs have emerged as a key instrument for policy in recent years.

Particularly under Trump, a Republican-led government may bring back policies that heavily rely on tariffs. This would raise uncertainty and lessen the allure of assets in developing markets, particularly for export-oriented countries like Mexico and a number of Asian countries.

However, a Democratic government may support more multilateral trade agreements, which might ease trade disputes and provide emerging nations with more reliable access to international markets.

Another major area of concern is geopolitics. Depending on who becomes president, U.S. ties with major international actors including China, Mexico, Argentina, Venezuela, and Russia may change significantly. However, given its president's close relationship with Trump, Argentina may gain from better bilateral relations.

The election's consequences are probably going to be complicated throughout Asia, presenting both chances and challenges. Whatever the outcome of the election, U.S.-China relations—which are already on a hostile and strained trajectory—are projected to stay difficult.

More limitations on Chinese technological businesses would probably cause foreign investors to refocus their attention on other regions, including Taiwan and South Korea, which are home to top-notch memory and semiconductor producers.

India is positioned to draw more attention from American and foreign businesses for investment as a result of its expanding role in global supply chains as businesses look for alternatives to China.

Meanwhile, the results of the election might significantly alter the geopolitical environment in the Middle East and Central and Eastern Europe.

Should the Republicans win, the United States will produce more fossil fuels, which might lower global oil prices and put more pressure on Gulf exporters to compete.

(Sources: investing.com, reuters.com)