Biden Without Blue Wave May Still Be a Win for Emerging Markets

A Joe Biden presidency, checked by a Republican-controlled Senate, may be just what emerging-market investors are looking for.

While the Democrat is seen pursuing policies conducive to trade and the environment, a divided Congress may stop him from firing a fiscal bazooka. That means more exports and faster growth for developing nations, as well as a boost for riskier assets from a more accommodative Federal Reserve, according to investors and analysts.

Emerging-market stocks are heading for their best weekly performance in five months after a turbulent week dictated by the possible outcomes to the U.S. presidential election. Investor demand for riskier assets has risen amid speculation that Biden will win the presidency. With the final result still uncertain, U.S. policy makers left interest rates near zero on Thursday and made no change to asset purchases.

The MSCI emerging-market stock index gained for a fifth day on Friday, solidifying the highest level it reached since 2018 and erasing all its post-pandemic losses the previous day. While counting continued in the U.S., a similar measure of developing-nation currencies added 0.2%, paced by the Indonesian rupiah and the Thai baht. The Turkish lira bucked the trend, weakening the most among EM currencies.

Here’s what market participants had to say:

Charles Robertson, chief global economist at Renaissance Capital in London:

It’s arguably the best news since the taper tantrum of 2013 and commodity price collapse of 2014 hit many in emerging markets so hard. EM debt and currencies should perform very well. The big problem in recent years was dollar strength driven in part by Trump’s protectionism. Fewer trade wars should reduce the bid for dollars, allowing currency appreciation, and improving external debt ratios to gross domestic product.