Prospects of a Trump win and huge tariffs spark worst sell-off for emerging market stocks in 10 months

Trump declared that there “WILL BE NO THIRD DEBATE” in a post on Thursday.

It’s been a tough month for emerging market stocks as the odds of a Donald Trump election win rise — and with it, the odds that his proposed tariff plan will actually see the light of day.

Emerging market stocks are headed for their worst monthly decline since January, with the MSCI Emerging Markets Index falling for a fourth day on Thursday for a 3.1% decline this month.

A select few EM stocks have taken the biggest hits, with Samsung, Alibaba, Tencent, and Meituan accounting for more than half of the index’s fall.

The decline comes as the market prices in higher odds of a win for former President Donald Trump with just two weeks until the election.

On crypto betting market Polymarket, Trump’s odds of winning soared as high as to 66% on Tuesday, their highest since President Joe Biden was still in the race in July. Odds are now slightly lower at 62%.

Polls, meanwhile, are much closer, with the most recent national polling average compiled by RealClearPolitics showing Harris at 48.7% versus 48.5% for Trump.

Trump has proposed raising tariffs on imports from all countries to as high as 20% and has said imports from China would be subject to a 60% tariff.

Investors’ fears of a damaging trade war aren’t unfounded. In 2018, Trump’s trade war with China led to a significant underperformance compared to US stocks, and strategists say the election’s outcome is again pushing investors away from EM shares as uncertainty builds.

“US elections have become a key driver of uncertainty as risk positioning is clearly fluctuating to a more cautious stance. In our recent client interactions, we have sensed global EM investors’ appetite to increase risk budgets over the next weeks may have been significantly reduced,” analysts from Citi wrote in a note last week.

The strategists note that the latest sentiment is a sharp contrast from a month ago, when investors were pricing in higher odds of a Harris win.

“There has been a significant change in investor sentiment, and investors’ risk budgets have likely been changing as a function of that.”

Other factors, like rising geopolitical tensions in the Middle East and a bond market sell-off, are also driving investors away from riskier assets. Investors are also expressing disappointment in China’s stimulus measures, which initially fueled a rally in EM stocks last month.