The prospect of former President Donald Trump returning to the White House in November has investors bracing for potential changes, with Latin American markets being closely watched.

Overview

During his previous term, Trump’s administration had strained relations with several Latin American countries, particularly concerning COVID-19 vaccine distribution and withholding financial aid in exchange for stricter migration policies in Central America. Investors are now anticipating how a potential second Trump administration could impact the region.

Key Areas of Concern

Mexico

Mexico, often seen as a bellwether for U.S. policy impacts on emerging markets, faces a complex situation due to domestic factors. Trump’s 2016 election victory caused the peso to drop nearly 8% in a week. This time, the peso is already down 6% this year, partly due to concerns over constitutional changes following the ruling party’s near super-majority.

Trade is expected to be a primary focus, with the U.S.-Mexico-Canada Agreement (USMCA) set for review in two years. Analysts believe Trump is unlikely to exit the USMCA but may use it to leverage higher tariffs and more U.S. manufacturing investment. This could lead to volatility in the peso as traders hedge against the probability of Biden’s reelection.

Personal Relationships

Right-wing populist leaders in Latin America, such as El Salvador’s President Nayib Bukele and Argentina’s President Javier Milei, have shown support for Trump. Both countries seek financial backing from the International Monetary Fund (IMF).

In 2018, Trump supported Argentina‚Äôs then-president Mauricio Macri in securing IMF funds, resulting in a $44 billion program. Milei is expected to request additional funds once the current program ends in December, if not sooner. Bukele is also anticipated to reengage with the IMF post-U.S. election, betting on Trump’s influence to secure favorable terms.

Venezuela Sanctions

Venezuela’s upcoming presidential election will be pivotal in determining its reentry into the international community. Under Trump, sanctions against Venezuela increased, while Biden aimed to restore ties to ensure fair elections. The next U.S. president’s stance will be crucial for Venezuela’s debt restructuring efforts, involving at least $60 billion in sovereign bonds, which currently require new issuances barred by U.S. sanctions.

China Trade War Escalation

Both Trump and Biden have maintained a tough stance on China, with added costs to trade persisting. If the trade war escalates, Beijing might devalue its currency to boost export competitiveness. This move could impact Latin American commodity exporters like Brazil, Argentina, Mexico, and Chile, all significant trade partners with China.

Investment Analysis

Investors are advised to monitor the political landscape closely, particularly in relation to trade policies and international relations. A Trump victory could introduce volatility but also create opportunities, especially in distressed markets like Venezuela. Strategic positioning ahead of potential policy shifts could yield significant returns.

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