Emerging market economies are not headed for a short-term crisis despite the protectionist rhetoric of US President-elect Donald Trump, says Brandywine Global Investment Management.
The recent tightening in liquidity and volatility seen in emerging markets is a “knee-jerk reaction” to Mr Trump’s victory, said Brandywine Global senior vice president Richard Lawrence.
Mr Lawrence added that while emerging market valuations have been driven lower by rising protectionist sentiment, this “will not likely translate into economic growth”.
Emerging markets have built up “substantial foreign-exchange reserves” since the 1990s that would permit them to defend their currencies moving forward, he said.
“Prior emerging market crises were exacerbated by fixed currency regimes, where these currencies were pegged to the US dollar rather than floating rates,” he said.
“The fact that most emerging market currencies are free floating these days means they can act as the shock absorber by going through the depreciation process.”
Additionally, Mr Lawrence said much of Mr Trump’s pre-election rhetoric, particularly regarding trade deals with Mexico, had already begun to soften.
“Our view is that candidate Trump took a very hard line on a number of different issues and he is now walking them back, as he may also do regarding his initial position on trade,” he said.
“We are waiting for information on his actual policies once in office rather than taking campaign promises at face value, which is why we have not made any significant adjustments to our emerging market positions.”