China Stimulus Optimism Lifts Emerging Markets After Trump Win

(Bloomberg) - Emerging-market assets advanced Thursday as optimism over China's stimulus prospects pushed stocks higher even as traders recalibrated their expectations in the wake of Donald Trump's US election victory.

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The Republican victory stirred up tariff threats for developing economies, adding volatility to markets already bracing for today's US Federal Reserve decision.

The election results initially jolted emerging markets, with MSCI's equity index taking its steepest hit in a week on Wednesday and 10 of 23 currencies tracked by Bloomberg posting losses of 1% or more against the dollar. But calmer sentiment returned on the next day. MSCI's developing-markets index was up 0.7% in early European hours, led by Asian stocks like Meituan, Tencent Holdings, and Taiwan Semiconductor Manufacturing Co.

In currencies, the offshore yuan bounced back from its sharpest plunge since 2019, triggered by Trump's victory. Chinese state banks intervened, traders said, selling dollars to stabilize the yuan. The Korean won and the Indonesian rupiah also advanced. South Africa's rand, highly sensitive to China's fortunes, emerged as Thursday's standout, benefiting from an anticipated stimulus boost.

Investors now await potential fiscal stimulus measures as a Chinese legislative meeting wraps up Friday, hoping for new steps to offset the impact of any tariffs. The optimism deepened with China's October export data showing a rapid acceleration — the fastest since July 2022, and beyond any economist's forecast.

The US Federal Reserve's rate decision will move into focus in the latter half of the session. Fed officials are widely expected to cut the benchmark rate by 25 basis points, following a half-point reduction in September. Yet the trajectory beyond today remains uncertain.

"A lot of what Trump is proposing is inflationary, more so in the US than internationally, which can disrupt the Fed's easing cycle," said Brendan McKenna, a strategist at Wells Fargo & Co. in New York. "A Fed cutting less aggressively should act as a tail-wind for the dollar," he said.

Among emerging-market central banks, Czech policymakers will likely press on with an eighth consecutive interest-rate cut as weak economic growth for now trumps concerns about inflationary risks. Before the week winds up, rate setters in Peru will likely trim the nation's borrowing costs by a quarter point, to 5%, with inflation running right around the mid-point of its 1%-to-3% target range.

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