Investors who spent the past year factoring countries’ standing with Donald Trump into their Latin America trades are confronting a new variable: a Democratic-controlled US Congress. The fallout from the US midterms is adding a new twist for investors in nations that benefited from — or were pressured by — Trump’s foreign policy, particularly in Latin America where the US president pushed to exert more power and crowd out Chinese influence.
In the days following the US vote, Argentine debt lagged on concern the outcome could add to challenges facing Trump ally Javier Milei as he seeks re-election. In Venezuela, investors are weighing whether the new political landscape could constrain plans there.
"It doesn’t take a rocket scientist to realize that this is not great for the very close friends," says Hans Humes, Greylock Capital Management’s chief executive officer. "The moves that you see in the market are rational moves."
The “friend-or-foe” gauge emerged as a key metric for portfolio managers in Trump’s second term, adding fuel to bond rallies from Argentina and Ecuador to El Salvador. Some of the steepest moves were seen in Argentina bonds, which dropped amid fears that a $20 billion US swap line forged last year could be pulled or neutralized under the new Congress, said Walter Stoeppelwerth, chief investment officer at local broker Grit Capital.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing