Trump’s America-first plan sent markets around the world crashing

Donald Trump’s election victory has pushed US stocks to new records and pushed the dollar to a two-year high. That’s anything but good news for the rest of the world.
Equities excluding the US tumbled, with the MSCI gauge at a three-month low. An index of emerging-market currencies has lost more than 1% since the US election, close to erasing this year’s gains. European stocks and the euro have flopped.

The stark divide between US and non-US assets has become clearer as Trump’s cabinet begins to take shape, with loyalists poised to nominate key positions to his “America First” proposals. It has confirmed investors’ worst fears: The push for higher tariffs, especially on China, will accelerate with a host of potentially disruptive policies that could push inflation higher and tie the hands of central banks.

Such concerns have prompted investors to park their money in US assets. Fund managers’ exposure to U.S. stocks jumped the most since 2013, according to a survey by Bank of America Corporation. On the other hand, emerging markets such as China and Mexico, which are seen as the most vulnerable to Trump’s trade policies, have taken the decision. A hit.

Rajiv De Mello, chief investment officer at Gamma Asset Management SA, said Trump’s more domestically-focused policies would favor US companies. “We reduced risk ahead of the US election, and now is the time to increase portfolio exposure but shift to investments that will benefit from Trump’s expected policy choices.”

Wednesday is shaping up to be another grim day, with the MSCI benchmark for Asian shares falling more than 1% and setting the stage for a weak session in Europe. Shares in South Korea were at one-year lows as foreigners sold companies such as Samsung Electronics Co. that are vulnerable to trade protectionism.

The Bloomberg gauge of the dollar was higher after hitting its highest level since November 2022 in the previous session.

Investors are closely tracking Cabinet appointments for signs of whether Trump’s campaign rhetoric will translate into policies. The president-elect had previously vowed to impose massive new tariffs, targeting duties of 20% on all foreign goods and 60% or more on goods from China. That revived fears of another trade war that could disrupt global supply chains and hurt companies heavily reliant on US sales.

Trump’s other proposals include mass deportations and tax cuts, which could lead to inflation and limit the Federal Reserve’s room to cut rates.

As those prospects support the greenback and pressure emerging market currencies, several central banks, including Bank Indonesia and Banco Central do Brasil, have stepped into markets over the past week to support their currencies.

The People’s Bank of China on Wednesday set its reference rate for the yuan stronger than market estimates, reflecting its discomfort with the currency’s weakness amid fears of higher US tariffs.

That doesn’t mean there are no pockets of safety.

Money managers such as Pictet Asset Management SA are ramping up their investments in markets such as India that are believed to be less affected by Trump’s policies. Punitive tariffs on Chinese goods could also drive investment away from the world’s second-largest economy and into Southeast Asia, according to Kasikorn Asset Management Company.

But for now, US assets look like clear winners.

“The ‘US exceptionalism’ theme looks like it still has plenty left in the tank. A fresh round of tax cuts will further boost economic growth and corporate earnings,” said Michael Brown, senior strategist at Pepperstone Group Ltd.