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Trump election dents Swedish appetite for emerging markets

Back in September, interest in emerging markets among fund buyers was riding high across Europe. And the Swedes were no exception to that. However, formerly strong appetite for emerging market debt and Asia ex-Japan equities has vanished following Donald Trump’s election to the US presidency earlier this month.

When our researcher visited Stockholm last week, the consensus was that Donald Trump’s presumed focus on enacting protectionist policies would provide headwinds for EM. Though some also noted that everything Trump has said shouldn’t necessarily be taken literally, most fund buyers have deferred their plans to increase their allocation to Asia ex-Japan equities (see chart below).

Just two months ago, almost two thirds of Sweden’s fund buyers said they would increase exposure to the asset class. Following Trump’s surprise win, that share has dropped dramatically to just 9%. Reflecting the uncertainty surrounding Trump’s future policies, Swedes however don’t plan a massive exodus either, at least for the time being. The overwhelming majority of them plan to keep their allocation to Asia ex-Japan equities as it is.

Appetite for global emerging market equities has also decreased, but not as dramatically. With over a third of interviewees determined to increase their allocation, GEM equities are now in fact the most popular asset class with Swedish fund buyers.

Bond bears

As emerging market currencies have tanked in recent weeks, so has Swedish investor appetite for emerging market bonds. In fact, as the prospect of expansionary fiscal policies by a Trump administration is driving inflation expectations upwards, all bonds are now out of favour. Investment-grade developed market fixed income was already deeply unloved, but this is now also the case for high-yield bonds and emerging market government bonds.

Swedish investors are now twice more likely to decrease their allocation to high-yield bonds than to increase it, and appetite for emerging market debt has all but vanished.

 

 

So are there any asset classes the Swedes have become more positive about this autumn? Yes, there is one. While the policies proposed by Trump, who has never been kind to bond investors anyway, are expected to drive bond yields up, equities could benefit in the short to medium term. At least, that’s what markets seem to be pricing in at the moment, and some Swedes are happy to go along with that: the share of interviewees planning to increase their allocation to US equities has risen marginally from 22% to 27%.    

Part of the Bonhill Group.