The impact of incoming U.S President Trump 2.0 on the Emerging Markets (EMs) has been mainly via the forex markets and it has been uneven as per Bloomberg\u2019s Global Insight.<\/p>\n\n\n\n
Focusing on the Philippines, the currency has weakened by 0.71% since Trump\u2019s election but has held-up relatively well compared to its regional counterparts. <\/p>\n\n\n\n
Major EMs have declined as much as 5% since Trump\u2019s election last 5th Nov but the shock of soaring USD is hitting some currencies harder than the others. Among the currencies that have taken a hit include the Malaysian ringgit and Thai baht — viewed to be vulnerable to a drop in US trade or remittances, or provide narrow differential to US interest rates. In contrast, the least affected currencies (e.g. Egypt and Turkey) are from countries with high interest rates.<\/p>\n\n\n\n
However, the local equities market has declined by 8% over the same period which looks exaggerated. <\/p>\n\n\n\n
Foreign selling has weighed down on the local market with foreign flows turning negative just before the elections and picking up after 5th November \u2013 we are currently running on 3 weeks of sustained net foreign selling pushing the MTD balance to -US$234mn (YTD balance is now at -US$190mn vs. +US$44mn as of end-Oct). <\/p>\n\n\n\n
The Philippines should be relatively insulated from the impact of Trump 2.0 given that it is more domestic-oriented. If at all, the concern should be that Philippines has one of the narrower interest rate differentials vs. US rates but as mentioned above, the PHP has held up relatively well. <\/p>\n\n\n\n
Thus, while we expect the BSP to cut its rate by another 25bps before end-24, we have put on review our expectations of a 100bps (1.0%) rate cut for next year. We do highlight that the seasonal pick-up in remittances during 4Q 2024 and the near record GIR level should help provide some support to the local currency.<\/p>\n\n\n\n
Looking forward, the differences in currency performance are likely to lead to diverging price pressures and monetary policy paths in EMs. Currency weakness may reduce the space for easing for their central banks. Still, the full effects will depend on the sequencing of policy shifts and the pace of policy changes under Trump 2.0.<\/p>\n\n\n\n