Ashmore Group is setting aside some money to snap up emerging market local currency debt in a potential sell-off in risk assets in the event of a contested U.S. election result, an executive at the investment manager told Reuters.
Many market participants have been pricing in the chances of victory for Democratic challenger Joe Biden in Nov. 3’s election, with many analysts seeing that scenario as generally favourable for emerging markets.
But although Biden leads Republican President Donald Trump in the polls, that gap has narrowed in recent days, while Trump has also refused to commit to a peaceful transfer of power if the vote count indicates he has lost to Biden.
“You want to have some powder dry if that happens,” said Gustavo Medeiros, deputy head of research at the emerging markets-focused firm. He did not say how much they set aside.
“If you have a contested election, so two weeks to a month and a half of uncertainty, for sure there’s going to be a lot of noise, for sure there’s going to be volatility. Most likely you’re going to have risk-off playing out and typically risk-off playing out in EM debt.”
In a contested outcome, Ashmore may seek to add emerging market FX exposure, while selling the U.S. dollar within its funds, said Medeiros.
“We’re returning to an environment where the dollar most likely over the next ten years is going to be for sale,” he said. “If that happens, you want to have more local. The place to add in EMD (emerging market debt) is in the local space.”
Anticipation of a Democratic sweep – a Biden election win and of his party regaining control of the Senate – have weighed on the dollar as investors bet on a large stimulus package. An index tracking its value against a basket of currencies =USD is down around 10% since March.
The prospect of a Biden victory has also weighed on the Russian rouble, as investors anticipate greater friction between Washington and Moscow.
Source: Reuters.com