Trump’s Victory Sends Shockwaves Through Global Markets: US-listed ETFs Tracking International Stocks Plummet
The unexpected victory of Donald Trump in the US Presidential election has sent ripples of uncertainty across global financial markets. While the US stock market celebrated record highs, many internationally focused exchange-traded funds (ETFs) experienced significant declines. This divergence highlights the complex interplay between domestic and international economies and the considerable impact of protectionist trade policies on global investment strategies. The market reaction underscores the unpredictable nature of political risk and its potential to reshape investment landscapes.
Key Takeaways: A Global Market Shake-Up
- US markets soared to record highs following Trump’s win, a stark contrast to the international market reaction.
- ETFs tracking international stocks experienced significant drops, particularly those focused on Asia and Europe.
- Trump’s proposed tariff policies, including a potential 20% levy on all imports and a 60% levy on Chinese goods, are the primary driver of this market reaction.
- The US dollar strengthened to its highest level since July, potentially exacerbating the challenges for international markets.
- Emerging markets particularly vulnerable to the stronger dollar and increased trade protectionism are facing significant headwinds.
International ETFs Take a Hit
Wednesday’s trading session saw a significant downturn for several prominent US-listed ETFs that track global stock markets. Funds focusing on South Korea (EWY), Mexico (EWW), Hong Kong (EWH), Japan (EWJ), Taiwan (EWT), and Chile all experienced declines despite the robust performance of US indexes. This downturn directly reflects investor anxieties regarding the potential consequences of President-elect Trump’s proposed trade policies.
The Tariff Threat
The primary concern stems from Trump’s campaign promise to impose significant tariffs on imported goods. His proposed 20% tariff on all imports, alongside a potentially crippling 60% tariff on Chinese goods specifically, casts a long shadow of uncertainty over global trade. While these policies were unpopular according to NBC News polling, their impact on the election results proved minimal despite the economy being a major topic of discussion for voters.
“While the investing landscape remains favorable in the U.S., international markets are very exposed to tariff policy,” explains Yung-Yu Ma, chief investment officer at BMO Wealth Management. “That uncertainty could limit near-term upside in global stocks.” This statement encapsulates the core market sentiment – the strength of the US market is not enough to offset the significant uncertainty surrounding international trade brought on by Trump’s announced policies.
Diverging Market Performances: US vs. International
The contrasting performances of US and international markets paint a clear picture of the current investment climate. The Dow Jones Industrial Average (.DJI) experienced its best day in almost two years, showcasing the domestic market’s resilience. However, European markets largely struggled as the reality of Trump’s victory set in. The iShares Core MSCI Europe ETF (IEUR), a key indicator of European market performance, slid by approximately 2.5%.
Asia-Pacific Markets Show Mixed Results
Asia-Pacific markets presented a more nuanced picture, with some sectors bucking the overall negative trend. Japan’s Nikkei 225 index, for example, showed an upward trend. Nonetheless, the iShares MSCI China ETF (MCHI) sustained a significant loss, dropping more than 2%, reflecting China’s particular vulnerability to the substantial tariffs proposed by Trump. This variance highlights the regional disparities in sensitivity towards protectionist policies. The overall trend however leans decidedly negative concerning Asian markets, except several isolated examples.
Argentina: A Unique Case
One notable exception to the general downward trend was the Global X MSCI Argentina ETF (ARGT), which climbed over 2% and hit a new 52-week high. This positive performance is potentially linked to Argentina’s recent election of president Javier Milei, a libertarian candidate who has drawn comparisons to Trump. This indicates a nuanced market reaction where perceived political alignment with Trump can somehow be interpreted as positive in certain specific regions. This anomaly further underscores the complex web of interconnected factors influencing market behaviour following the conclusion of the US election.
The Strengthening Dollar and its Impact
The ICE U.S. Dollar Index (.DXY), a key indicator of the dollar’s value against other major currencies, reached its highest level since July. This strengthening dollar, fueled by expectations of increased inflation following Trump’s election victory, poses a considerable challenge for international stocks, particularly those within emerging markets. Adam Turnquist, LPL Financial’s chief technical strategist, pinpoints the link between the dollar’s rally and the resulting pressure on overseas investments.
“Continued strength in the American currency can hurt international stocks, particularly emerging markets,” Turnquist states. This statement highlights the significant financial implications of a strengthened US dollar for these regions, particularly in the wake of increased uncertainty surrounding trade policies. The iShares MSCI Emerging Markets ETF (EEM), a broad gauge of emerging market performance, shed more than 1% on Wednesday, clearly reflecting the vulnerability of this sector to the stronger dollar and the uncertainty introduced by Trump’s election.
Conclusion: Navigating Uncertainty in Global Markets
The market reaction to President-elect Trump’s victory underscores the interconnectedness of global finance and the profound influence of political events. While the US market celebrated a record-breaking day, international markets grappled with uncertainty surrounding the potential impact of protectionist trade policies. The strengthening US dollar further amplifies these challenges for international investors and emerging markets in particular. This situation underscores the need for a cautious and adaptive approach to international investment strategies in the face of these global economic uncertainties and the potential for lasting trade policy shifts under President-elect Trump’s administration.
