The results of a separate US Congressional race are also important. That’s because a divided legislature would limit the new president's ability to implement policies, while a clear majority could lead to more extreme policy changes.

We explore the various scenarios and their potential effects on emerging market debt (EMD), with a focus on the Fed’s influence and where US trade policy may be heading.

Kamala Harris wins

If Democrats end up controlling the White House and Congress, we can expect the vice president to continue many of the current administration's policies.

Proposed higher spending and tax hikes for companies and wealthier US households could initially stimulate the US economy, but these will eventually drag on growth, impacting corporate investment.

In the short term, we may see US Treasury yields and the US dollar rise. However, in the medium term, emerging markets might gain as international investors seek other opportunities due to slower US growth, resulting in increased capital inflows.

While Harris can be expected to keep President Joe Biden’s trade policies, she will likely to be more selective in targeting countries with tariffs, leading to less disruption. This is better for EMs, which play vital roles in global supply chains and are big commodities exporters.

Another important consideration will be her commitment to climate change and clean energy investments – which could benefit poorer and more vulnerable emerging market countries.

Donald Trump wins

Another Trump presidency, coupled with Republican control of the legislature, may boost the US economy through fiscal stimulus, such as unfunded corporate tax cuts.

This would likely be inflationary, limiting the Fed's ability to cut interest rates to support growth and putting upward pressure on the yields of US government debt and the US dollar.

This is the more negative scenario for emerging markets, amid higher funding costs, weaker emerging market currencies and capital outflows from developing economies.

The former president’s tariff-focused trade policy could be more disruptive for global trade and deepen a trade war with China. This could lift US inflation, which would force the Fed to raise interest rates once more, strengthening the US dollar. Investment outflows from EMs would likely follow.

His support for increasing US oil production could bring down global oil prices and lead to a rebalancing of capital flows between EM countries that are net oil exporters or net importers.

Divided Congress

In scenarios where neither Democrats nor Republicans win control of the two chambers of Congress, the impact on core assets and emerging markets is less straightforward.

A Harris presidency might face fiscal brinkmanship and domestic debt-ceiling issues – a recurring lightning rod for inter-party dispute, while Trump may focus more on trade policy.

A divided legislature would limit a new president's ability to implement policies, except in foreign affairs and trade (where a US leader enjoys more autonomy).

Division could lead to more moderate policy outcomes, compared to a clean sweep by one party. Depending on your politics, this is either a hindrance or a good example of political checks and balances in action.

Trade policy and protectionism

Despite polarisation in US politics, there is some bipartisan agreement on trade policy – specifically being tough on China (which appeals to many US voters).

Regardless of the election outcome, the next US administration is expected to maintain a more protectionist stance on global trade.

For example, the United State-Mexico-Canada Agreement (USMCA) renegotiation in 2026 appears contentious, regardless of who will be occupying the Oval Office.

Harris may focus on stable strategic alliances and trade agreements, supporting a rules-based international order. Trump may prefer bilateral deals and more fluid alliances.

Role of the Fed

The Fed finally cut interest rates last month. EM central banks started cutting even earlier but the Fed’s example will encourage further monetary easing in these markets – good for emerging market debt.

Real rates in most EMs are above those in the US. This is especially true in Latin America. With inflation moderating in many EMs, their central banks are likely to be cautious, yet opportunistic, in their upcoming rate decisions.

China also announced more aggressive easing measures following the Fed’s half-a-percentage-point cut. These include fiscal transfers and rate cuts to bolster domestic demand, although the scale of this step change in Chinese policy remains uncertain.

That said, the US election and a repricing of the Fed’s rate path remain potential challenges to EM central banks over the short and medium term.

Market volatility and sudden dollar strength could delay EM easing. A trade war escalation under a Trump presidency could also limit the scope for lowering interest rates.