The outcome liberals and markets have feared has materialised, as Donald Trump is elected president of the United States after a vicious, personality-driven campaign.
The two front-runners were the least popular candidates in recent history of the US and over the last months the polls have been wildly volatile (and ultimately turned out to be pointless) as Trump’s misogynist remarks came to light and Clinton’s email scandal continued.
Today, Trump’s victory signals a vote for change in US politics and economics, against a backdrop of rising social inequality and racial divisions in the wake of the global financial crisis. Reminiscent of the UK’s vote to leave the EU, it follows a wider rise of populist parties across Europe.
But while markets famously ‘hate uncertainty’ – and the details of Trump’s policies are far from certain – it is important to remember that Trump won’t be omnipotent. The American constitution breaks up power between the Senate and the House of Representatives (both of which are under Republican control, with many senior Republicans at odds with Trump), the Supreme Court and the Federal Reserve – so there are some limits on the amount of political and economic damage Trump can do.
While countries that have been the target of Trump’s anti-trade campaign tirades, such as Mexico and China, are likely to lose out, quasi-authoritarian Russia is set to benefit from Trump’s presidency.
Trump’s victory is also likely to be a blow to the global fight against climate change, and the green energy sector, as the next president has previously denied that it exists.
Here we round up the likely market and sector winners and losers according to investment experts.
‘The reality is that stock markets are influenced by economic growth, innovation and the growth in corporate profits over time. Irrespective of who sits in the White House, people continue to go to work, businesses continue to pursue profits,’ says Tom Stevenson, investment director for Personal Investing at Fidelity International. In other words, the world goes on.
He adds we should not underestimate the seismic shock that America has delivered to the global economy but history suggests that big market events in time look like blips in a long-term upward progression. ‘Look at a 30-year chart of the stock market and the 1987 crash is barely noticeable.’
Perhaps the greatest beneficiary of a Trump presidency is Russia, as its relations with the US will now undoubtedly improve says Michael Levy, frontier and emerging markets investment director at Barings. ‘We will possibly see a reduction in sanctions in the coming months, which could provide a boost to Russian companies,’ (And, one might add, to those Putin-affiliated oligarchs who run them).
John Bailer, senior portfolio manager at The Boston Company Asset Management, says: ‘With Trump’s election, we expect markets to pull back due to short-term uncertainty. However, it’s not a reflection of the fundamentally sound US economy. The US has full employment and rising household formations, which has positive knock-on effect for other sectors. When coupled with low inflation, we believe the US economy can grow at around 2 per cent without overheating.’
Jon Cunliffe, chief investment officer at Charles Stanley, says: ‘After an initial fall in markets we suspect that negative views will mellow, and more will come to suspect that a Trump presidency will not tip the US into recession or slower growth after all.
‘There may be opportunities to invest at more attractive prices as a result of a short-term negative reaction to the Trump win. Whilst the new President may struggle to get through all his programme, the tenor of he wants to achieve is reflationary. This should prove to be better for shares than for bonds. A Trump win is more positive for the energy, healthcare and financial sectors.’
‘As the dust settles, the prospect of lower corporate tax rates and reductions in income taxes should be viewed positively and markets will look to understand more about the Trump plans for a significant increase in infrastructure spending,’ says Peter Hensman, global strategist for the real return team at Newton Investment Management.
But it is not clear how deliverable Trump’s campaign promises are – and the cost of long-term political uncertainty will continue to loom large over markets worldwide.
The anti-globalisation rhetoric of Trump in the campaign has not helped Asian markets this morning, nor Europe, says Ben Wattam, investment manager at Mattioli Woods. ‘These markets could be especially damaged by his election, as investors have to be nervous of a more economically isolationist United States.’
Jason Hollands, managing director at Tilney Bestinvest, says: ‘The political earthquake unleashed by the US electorate is already provoking extreme volatility in global markets, with equity index futures and Asian markets down sharply overnight and the Mexican peso collapsing to an eight year low.’ Mexico is especially vulnerable to Trump’s proposed crackdown on illegal immigration and his vow to repatriate manufacturing jobs back to the US.
‘Equities across the globe look set to bear the brunt of the negative market reaction in the short term, while there is a corresponding near-term flight to perceived safe havens such as gold, the yen and the Swiss franc, and developed market sovereign bonds.’
Hollands adds that based on Trump’s promises to slap tariffs on Chinese and Mexican imports, bring jobs back to the US and put in place expansionary fiscal policies which might result in higher borrowing costs, the impact could well be more negative for emerging markets than the US itself, where the domestic economy might be boosted by tax cuts and infrastructure investment.
Almost a third of Mexico’s GDP relies on its northern neighbour, and Trump’s promise of a 35 per cent tariff targeted at US companies that outsource abroad could be costly, particularly for the automotive industry, says Levy.
Colin Morton, portfolio manager at the Franklin UK Equity Income Fund, points out that the result has been negative for financials, and particularly the banks, given the consensus that interest rates are likely to be held in the near term.
A Trump victory has made a rate hike by the Fed much more uncertain, agrees Paul Jackson, head of research at Source ETF. ‘Not only would the Fed hold off hiking rates in December if markets remain agitated, it is also possible that Trump’s comments about Fed rates being held artificially low to help Obama could complicate the Fed’s thinking. Do they take Trump at his word and raise rates or do they fear his reaction to a rate hike? A December rate hike is now less likely.’
‘The real issue is whether a Trump presidency will be good or bad for the US and world economies. US businesses will not be encouraged but it may be that working class households feel more encouraged to spend. The problem now is the lack of detail about what President Trump will do and what the markets don’t know, they will make up.’
Trump has also mentioned plans to renegotiate the North American Free Trade Agreement (NAFTA), another potentially worrying development with global implications. Therefore his presidency might signal the end of global free trade agreements.
‘Trump’s anti-free trade rhetoric threatens global growth and could explain the greater negative reaction in Asia which is more reliant on its relationship with the US than in Europe,’ says Jake Robbins, manager of the Premier Global Alpha Growth Fund.
He adds the consequences are serious if the US erects barriers to trade. ‘Exporters will struggle as the cost of trade rises, which will be a particular blow to emerging markets that seem to have been stabilising of late. Oil names may suffer as Trump has promised to allow the shale producers to pump as much as they like with little environmental considerations.
‘And with the threat to established institutions like NATO, we will likely see political volatility remain heightened, particularly given looming elections and referendums in Europe.’
This article was originally published in Money Observer on 9 November 2016: http://www.moneyobserver.com/our-analysis/bull-and-bear-perspectives-following-trumps-victory