(Bloomberg) -- Not every country’s financial market is suffering fallout from Donald Trump’s return to the White House — and money managers say relations with the US are playing a growing role in deciding where to invest.
As the likes of Colombia and Mexico are rattled by tariff fears, assets of nations seen as benefiting from close ties with the US leader, like Argentina and Ecuador, are getting an extra lift. While that’s particularly true in Latin America, where most countries count the world’s largest economy as a key trade partner, the Trump “friend-or-foe” factor is impacting emerging-markets across the globe, from India to Vietnam.
“Winners here are not the traditional ones that we’d think about — there’s a new set of countries that will emerge as winners,” Amer Bisat, a managing director and head of emerging markets fixed income at BlackRock Inc, said at a recent industry panel. In today’s world, a country that “aligns itself politically to the US ends up being the winner — and that becomes much more of a transactional relationship.”
Gramercy Fund Management, which was set up by veteran investor Robert Koenigsberger in 1998, echoed the view in its quarterly strategy outlook, saying the beginning of the new US administration should be characterized by a stronger emphasis on bilateral relations at the expense of multilateral ones.
Bonds from countries including Argentina and El Salvador could enjoy “some market premium” at the start of the year thanks to their leaders having a good relationship with Trump, according to Gramercy. Turkey, India, Hungary could also benefit.
Since Trump secured his return to the White House, dollar bonds of Argentina, Ecuador and El Salvador have handed investors gains of at least 11%, data compiled by Bloomberg show. That compares with a 2.3% return for a benchmark index of developing-nation credits.
Fears that Trump’s economic measures might boost the dollar and fan inflation in the world’s largest economy, cutting the room the Federal Reserve has to lower interest rates, have muddied the waters for developing economies. A lack of clarity around Trump’s tariff plans, which could have devastating impacts in emerging nations, have also dimmed the outlook for the asset class, which has been grappling with back-to-back annual outflows.
Asian economies fare worse than emerging peers, with high trade surpluses against the US and secondary effects from measures on Chinese trade that risk stifling the region’s growth. Vietnam, Malaysia and Thailand are some of the most at-risk nations should Trump enact across the board tariffs, with exports to the US as a percent of GDP in the double digits, according to US government data compiled by Bloomberg.
“Identifying Trump’s friends and enemies is very important. The obvious challenge with the US is for China and everything that follows on from that,” said Arnab Das, a global market strategist at Invesco Asset Management Ltd. in London. “The tariffs are going to be leveled at different countries for all kinds of transgressions and bad behavior.”
As part of a larger strategy to avoid any confrontation with Trump, India is already considering options to narrow its trade surplus with the US, possibly through a trade deal, cutting tariffs or importing more goods from the US. The country is also prepared to work with the Trump administration to identify and take back all of its residents residing illegally in the US.
Investors in Europe have the additional complication of disentangling Trump’s views on individual countries and their leaders from his general approach to the European Union. Hungary, whose leader Viktor Orban is frequently praised by Trump and other US conservatives for a governance style Orban has called “illiberal democracy,” is a prime example for traders.
‘Winning’
In Latin America, El Salvador, Argentina and Ecuador are expected to receive strong US support during Trump’s term, according to Ricardo Penfold, a managing director at Seaport Global.
Argentina’s dollar bonds have been on a tear due to Milei’s harsh austerity plan, and his affinity with Trump — he was one of the few foreign leaders to attend the US President’s swearing in — may help the country skirt tariffs, avoiding additional pressure for its beleaguered currency, said Jeff Grills, head of US cross-asset and emerging-markets debt at Aegon Asset Management.
El Salvador has already started taking in US military planes filled with deported migrants and is working with Trump to develop an asylum agreement. Daniel Noboa’s tough policies against transnational gangs and his support for foreign military bases in Ecuador — should he win the upcoming election — will also appeal to Trump, said Nathalie Marshik, a managing director at HSBC in New York.
Whiplash
Meantime, countries that Trump had gone after so far have seen their asset prices getting whiplashed. Traders soured on Colombia earlier this week after a migration dispute resulted in a brief, but unexpected tariff spat, sending the currency down as much as 2% in one day.
Panama, whose leader rebuked Trump’s threat to reassert control of the Panama Canal, saw JPMorgan Chase & Co. downgrade its recommendation on the country’s bonds. Markets should take the risk more seriously and there’s “little clarity on the endgame,” strategists including Gorka Lalaguna wrote in a note last week.
In Mexico, investors are waiting to see if Trump will enact the planned 25% tariffs on the country’s goods on Saturday. The White House said Friday that Trump intends to move ahead with the idea, denying a report that he planned on delaying the implementation by a month.
Unlike Mexico, Turkey has a balanced relationship with the US as the $29 billion trade volume is almost equally split between exports and imports, according to the US government data for 2024. However, this did not spare the country in 2018, when Trump sanctioned senior Turkish officials and raised tariffs on some imports in response to the extended detention of an American citizen, sending local markets into turmoil.
While a good relationship with the US might help, it’s no guarantee of outperformance. Local factors — from elections in Ecuador to an IMF deal in Argentina — are still key to sustain gains.
“The lesson learned is that Trump is willing to push very aggressively to use sanctions and tariff threats to achieve his policy objectives,” said Eurasia Group analyst Risa Grais-Targow. “There are a number of countries in the region that will end up capitulating.”
--With assistance from Mpho Hlakudi, Jorgelina do Rosario, Kerim Karakaya, Matthew Burgess, Malavika Kaur Makol, Kevin Simauchi, Selcuk Gokoluk and Srinivasan Sivabalan.
(Updates with context on Hungary in 11th paragraph and adds White House comments on tariffs in 17th.)
