JPMorgan Identifies Post-Election Opportunity to Increase Emerging Market Asset Exposure

Investors may find a “more sustained opportunity” to increase their exposure to emerging market assets after the risks related to the upcoming US election subside, according to analysts at JPMorgan Chase.

However, in a recent note, the analysts indicated that they are currently “fading the bounce”—trading against the rebound in emerging market equities observed last week, which followed China’s announcement of new stimulus measures aimed at revitalizing its economy.

While they acknowledged that the stimulus package could be beneficial, they suggested that more substantial measures are needed to address growth concerns. They believe that the dependence on monetary support rather than fiscal could limit its positive impact on final demand.

Additionally, the analysts noted that after Donald Trump’s election win in 2016, emerging market assets lagged behind their developed market counterparts by 10% over the subsequent two months, marking a significant sell-off.

With the race between Trump and Democratic challenger Kamala Harris remaining competitive in the final weeks leading up to the November 5 election, recent polls indicate that Harris has only a slight edge over Trump. Furthermore, both candidates are closely matched in key swing states that could determine the election outcome.

If Trump were to win—especially with his economic strategies that include imposing high import tariffs, such as a 60% duty on Chinese goods—emerging market assets could underperform, according to the JPMorgan analysts. This potential outcome would be exacerbated in the event of a “red sweep,” where the Republicans secure both the presidency and control of Congress.

The analysts highlighted concerns regarding the implications of a 60% tariff on Chinese imports, the inflationary effects of tariffs on other countries, and the potential strengthening of the US dollar, all of which could lead to a sell-off in emerging market assets if Trump triumphs in the upcoming election.

Conversely, a victory for Harris, coupled with a divided Congress, might enable these assets to perform better in a more sustainable manner. Harris has criticized Trump’s tariff policies, labeling them a “sales tax,” but has not outright rejected the current administration’s measures to expand tariffs on goods coming from China, such as steel and electric vehicles.