Here’s how emerging markets are reacting to a potential Biden win

The global markets have been closely monitoring the U.S. elections, with a particular focus on the potential outcome of a Joe Biden presidency. As the results hang in the balance, emerging markets have reacted positively to the prospect of Democrat Joe Biden becoming the next U.S. President. John Cairns, Client Strategist at Rand Merchant Bank, joined CNBC Africa to discuss the market's response to the election. Cairns highlighted the complexities of the market reaction, emphasizing the impact of a 'constrained Biden presidency.' The market rally is believed to be driven by the expectation that Biden will face opposition from the Republicans in the Senate, ultimately resulting in a modest stimulus package and a block on tax increases. This scenario has generated optimism among investors, leading to significant market moves since the election results. Emerging market currencies, including the South African Rand, have experienced notable gains in response to the evolving political landscape. Cairns pointed out that the Rand has been the best-performing currency over the past six months, outperforming its counterparts in the emerging market space. While there are positive sentiments surrounding South Africa's potential under a Biden presidency, Cairns cautioned about the extent of the Rand's appreciation. He highlighted the correlation between the Rand's movements and the Mexican Peso under a Biden presidency, suggesting that the current gains might be overstretched. Concerns were raised about the possibility of a snapback in the currency's value, signaling a degree of caution in evaluating the Rand's trajectory. The interview also delved into domestic factors impacting South Africa's economic outlook. The discussion touched on President Cyril Ramaphosa's efforts in managing the COVID-19 pandemic, tackling corruption, and stimulating infrastructure development. While positive sentiments were shared regarding these initiatives, concerns lingered over the country's budget, particularly in light of uncertainties surrounding the COVID-19 situation. Cairns expressed apprehensions about a potential second wave of the virus and the implications of renewed lockdown measures on South Africa's economic recovery. As the markets continue to adjust to the evolving political and economic landscape, Cairns suggested that reevaluating currency forecasts would be prudent, given the recent surge in the Rand's value. Despite the optimism surrounding the Rand's performance, Cairns maintained a cautious stance, warning that the currency's gains might be excessive. Looking ahead, the market dynamics and political developments are expected to influence the trajectory of the Rand and other emerging market currencies in the coming months.