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Changing Fortunes for Emerging Market Stocks

Donald Trump could have a big influence on emerging market stocks, especially in China and Russia. Here’s what to look for when he takes office.

As president-elect Donald Trump nears the end of his selection process for cabinet posts, a few stories are significant for anyone interested in investing in emerging market stocks.

Last week, Trump nominated Iowa governor Terry Branstad to be his ambassador to China. Branstad has known Chinese President Xi Jinping for more than 30 years and has a long history of promoting the sale of Iowa’s agricultural products to China.

China greeted the nomination warmly, calling Branstad “an old friend of the Chinese people.”

But on other fronts, Trump has been more confrontational with China. First, the president-elect took a congratulatory call from the president of Taiwan, something previous presidents declined to do. The problem is that by taking such a call, Trump gave de facto recognition to Taiwan, which is regarded as a renegade province by China.

Then this week, Trump explicitly called the U.S.’s “One China” policy into question, and that caused a real stir.


Under the long-standing “One China” policy, the U.S. has acknowledged that Taiwan is part of China, even though the U.S. has sold large quantities of weapons to the island nation. China, for its part, has been content to allow Taiwan to remain independent in practice as long as its inclusion in China in principle remains unquestioned.

China has already been hit by high tariffs on its steel products, and Trump’s threats to put a 45% tariff on Chinese products and label the country a “currency manipulator” signals a likely confrontation between the White House and the Chinese government.

Trump’s nomination of Rex Tillerson to be ambassador to Russia signals a change in attitude in a more positive direction. Tillerson, the CEO of Exxon Mobil (XOM), is a veteran of negotiations with Russian oil companies and was given the Russian Order of Friendship by Vladimir Putin. Clearly, investors are anticipating closer U.S.-Russia ties, and a probably reduction or elimination of the sanctions against Moscow. And while Chinese stocks that trade on U.S. exchanges have been trading mostly sideways, the SPDR S&P Russia ETF (RBL), which has been appreciating since January, has skyrocketed since the election.

President-elect Trump has said that his skill as a negotiator is his real strength, and it remains to be seen how much his confrontation with China and his rapprochement with Russia will play out. But investors in emerging market stocks will be watching closely.

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Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.