Looking Beyond Trump

Emerging Markets:

Looking Beyond Trump

Donald Trump may dominate the headlines about emerging market economies this year, but it would be a mistake to ignore the impact of local elections and government policies.

Consider these five key events and their likely impact in 2017:

China: Xi’s Politburo reshuffle

Five retiring members of the Politburo will be replaced at October’s party congress. President Xi Jingping is likely to consolidate power as a result of the reshuffle, meaning key aspects of his economic policy, such as supply-side reform and the emphasis on innovation, will remain firmly on track.

 

India: Modi tested, with tax change key

State assembly elections this year and next are a mid-term test for Narendra Modi’s BJP party. However, the most important impact of the year will be policy driven: existing indirect taxes will be replaced with a unified goods-and-service tax (GST) in April. This has the potential to deliver significant improvement in India’s corporate infrastructure.

 

South Korea: Presidential election follows political turmoil

If a left-leaning president is elected (as is widely expected) in December, this is likely to mean accelerated reforms in the country’s large family-dominated conglomerates. It could also mean a more accommodating approach towards China – which would be welcomed by many companies with a focus on the Chinese market.

 

South Africa: New ANC president to show markets the way

The election of the new ANC leader in December will be an indicator as to who will replace Jacob Zuma as president in 2019. The market would favour current deputy Cyril Ramaphosa as a steady hand to steer the ship. Zuma’s preference, however, his ex-wife Nkosazana Dlamini-Zuma, would be a highly polarising choice, unlikely to enact the policies needed to boost growth.

 

Brazil: Temer lasts the distance

Brazil’s unpopular president Michel Temer actually appears likely to see out the remainder of his term to 2018. Successful passage of some of his proposed reforms would heighten conviction in a Brazilian economic recovery, as well as prompting a rally in equities and bonds. However, some proposals, such as labour reform, VAT unification and state debt restructuring, are unlikely to progress this year.


For a more on what could be in store for emerging markets in 2017, read Martin Currie’s Active Outlook on Global Emerging Markets.

Top

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.