FOR MUCH of 2016, things seemed to be going well in emerging markets. A pickup in commodity prices signalled that the global economy (and China’s, in particular) was more robust than feared as the year began. In the manufacturing sector, the average level of the purchasing managers’ index in developing countries ticked up from 49 at the start of the year (indicating contraction) to 51 (expansion) by October, according to Goldman Sachs.

Signs of stability could be identified even in the economies that most worried investors in recent years—the so-called “fragile five” of Brazil, India, Indonesia, South Africa and Turkey. All had seen their current-account deficits shrink in the past three years, making them less dependent on foreign inflows of capital. 

Confidence in emerging markets had also revived among international investors. Before the American presidential election both the MSCI emerging-stockmarket index and JP Morgan’s emerging-market bond index had outperformed their developed-world equivalents this year.

But Donald Trump’s victory seems, at least temporarily, to have changed minds. On November 11th emerging-market currencies suffered their second-biggest daily sell-off in the past five years, dropping by 1.7% against the dollar. The dollar-denominated bonds of developing-country governments fell by more than 6% in the four trading days after the election, while their local-currency bonds (exposing foreign investors to the risk of depreciation) dropped by 7.4%, according to Bloomberg. And the MSCI emerging-market equity index fell by 7% in dollar terms.

The Institute of International Finance, a trade group, reports that foreigners have pulled some $7bn out of emerging markets since the election (see chart). The episode has been dubbed the “Trump tantrum” in tribute to 2013’s similar “taper tantrum” when the Federal Reserve signalled it would reduce the pace of its bond-buying programme, known as quantitative easing.

Some of the market movements say more about America than about emerging-market fundamentals.

Mr Trump’s victory has led to expectations that the Republicans, who control both the executive and the legislature, will push through tax cuts, higher spending on infrastructure and defence, and rules designed to encourage multinationals to repatriate overseas profits (see Free exchange).

That programme is likely to lead to bigger budget deficits, higher Treasury-bond yields and a stronger dollar, especially if the Federal Reserve responds to the fiscal stimulus by pushing up interest rates. These moves would have a knock-on effect in emerging markets; their currencies fall as the dollar rises, while their bond yields rise (and prices fall) in line with the Treasury-bond market.

A new paper from Hyun Song Shin of the Bank for International Settlements suggests that a stronger dollar may have significant financial, as well as trade, effects in emerging markets.

Many companies have borrowed in dollars, so the cost of repaying their debt rises when the greenback gains ground against their domestic currencies. Much of this borrowing is conducted through the banking system, leaving the banks exposed to the risk of a rising dollar.

Accordingly Mr Shin finds that “dollar appreciation is associated with a slowing of cross-border dollar lending”—in other words, a tightening of credit conditions in emerging markets.

The dollar may be a better indicator of risk appetite than the VIX index of equity volatility, the paper argues.

But investors are also worried that the election of Mr Trump signals a turning-point in globalisation. On the campaign trail, he pledged to renegotiate the North American Free-Trade Agreement, NAFTA, to declare China a currency manipulator and to impose protectionist tariffs.

It is not yet clear how many of these proposals Mr Trump will try (or be able) to implement. To use a Brexit analogy, the outlook for emerging markets may depend on whether the new regime represents “soft Trump” or “hard Trump”. If the main economic impact of Mr Trump comes in the form of a fiscal stimulus, the result could be a boost to global as well as American growth.

That would be good for emerging-market exports, which have been sluggish. They fell by 3.5% in the year to September in dollar terms, according to Capital Economics, while in volume terms they were flat. Industrial-metal prices, which are especially sensitive to the economic outlook, have bounced since the election result.

But if the main focus of the Trump presidency is on trade protectionism, then emerging markets are bound to suffer. The German IFO economic institute estimates that, in a trade war, Mexican GDP could shrink by between 3.7% and 5%, for example. That explains why the Mexican peso has been the currency hit hardest by Mr Trump’s election.

It is possible that both elements of the Trump agenda might be pursued. A fiscal stimulus would suck in imports and thus cause the trade deficit to widen. A strong dollar would have the same effect, by making imports cheaper and American exporters less competitive. Since Mr Trump has vowed to eliminate the deficit, this might cause a lurch to protectionism at a later stage of his term of office.

The other unknown is security policy; a retreat from America’s defence commitments would cause investors to take fright and reduce their exposure to emerging markets.