Foreign Equities Receive Brunt of Trump Win — Evening Brief – 11.19.24
Donald Trump’s win has triggered an eye-popping surge in U.S. equity prices. However, the incoming administration and its proposed policies are perceived as a potential black swan when it comes to the direction of share prices in other parts of the world.
There is considerable ambiguity over the specifics of Trump’s policy proposals, including the implementation of universal tariffs on imports; but, for now, the equity markets are decisively responding, as indicated by indexes representing various global equity regions.
The disparity between US equity prices, represented by the SPDR S&P 500 ETF (SPY), and international stocks outside the US, as indicated by the iShares MSCI ACWI ex U.S. ETF (ACWX), has markedly increased in favor of US equities since the election. For the year, the SPY has increased by 26%, far surpassing the ACWX, which has risen by 6.2%.
A lot of the bad news around Trump’s rhetoric on imposing 60% tariffs on Chinese goods and up to 20% on Asia ex-China has been slowly priced in. However, it’s early to determine if the divestment in foreign equities is exclusively a response to Trump’s election or indicative of a persistent threat; yet, the prevailing sentiment is to sell first.
A notable exception to the decline in foreign equity prices is the increase in the Central and Eastern Europe Fund (CEE), a closed-end fund that serves as a proxy for the ACWX due to the absence of an ETF specifically focused on this region. CEE surged significantly following the election, although it’s given back some of its gains in recent days.
The rationale appears to be that Trump’s assertions regarding the resolution of the Ukraine-Russia conflict will benefit businesses in Poland, Hungary, and other adjacent Eastern European nations within CEE’s portfolio.
The prevailing sentiment has shifted toward apprehension as the prospects for Trump 2.0 for markets and economies beyond the U.S. become apparent. Citigroup analysts in a note published last Thursday cautioned that the global economy will be adversely affected by Trump’s trade policies, while the US dollar’s strength will exert pressure on emerging market assets.
“The world is entering an era of protectionism,” said Eswar Prasad, Cornell University professor and former head of the China division at the IMF. “The US turning aggressively to tariffs—and the second-largest economy in the world [China] desperate to expand its exports—creates the perfect storm.”