Trump victory dents world markets: what it means for your investments

9 November 2016
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Republican Donald Trump has won 278 electoral college votes to become the United States of America’s 45th President, beating Hilary Clinton, the Democratic candidate.

At the time of writing, the result has only just become clear, but once Ohio had been called for Mr Trump, at around 22:30 local time (03.30 GMT), a Republican victory seemed inevitable.

The reaction worldwide has, as with Brexit, been one of shock. As Fabrizio Quirighetti, chief investment officer at SYZ Asset Management put it: “This unprecedented presidential race has finally come to an end and, once again, the anti-establishment vote has been underestimated by polls, journalists and analysts as the winner is Donald Trump. The first thing that comes to our mind is ‘hope for the best, but prepare for the worst’, as the campaign has provided many evidences Trump could be a terrible president.”

Markets which are open have plunged all across the world, and those set to open later are expected to fall - although this event will have been priced in to an extent.

Rebecca O’Keeffe, head of investment at Interactive Investor, Moneywise’s parent company, says: “Wow! In what is likely to spell the end for polling agencies worldwide, Donald Trump has been elected US President. The result sent shockwaves throughout Asian markets, with equities falling and safe havens rallying strongly - but European markets are far less bearish, with share prices lower, but not in freefall.”

 

And as Ben Yearsly from Wealth Club says: “Look at Brexit as an example. Those that panicked crystallised losses, whereas those that remained invested bounced back and have seen gains since. The FTSE hasn't fallen that much this morning, but if other markets do then that is a buying opportunity. Trump isn't stupid, he knows how ingrained the markets are in American psyche and despite the rhetoric he will want to ensure that markets will remain calm. He already appears conciliatory towards Hilary.”

At the time of writing (9.30am):

  • The FTSE was predicted by experts to start this morning’s trading 3% down, but actually it fell by around 1%, to 6834.03.
  • The price of gold has gone up by 5% to $1,303.90 per ounce.
  • The Nikkei - Tokyo’s main stock market index - has lost 5.4%, falling to 1,6251.54, while the Topix, which is domestic-facing, has fallen 4.57%, to 1,301.16.
  • The US dollar has fallen from $1.2378 to $1.2500 against the pound, and dropped against most major currencies too, including the euro.

 

 

On the back of an event such as this, investors seek to move their money into places deemed safe. At this point it isn’t so much about making money, but protecting it. This is why gold prices have risen – gold is traditionally seen as a ‘safe haven’ - and why the Nikkei is falling. As we saw with the FTSE100 recently, Japanese markets enjoy a weak currency as the country exports a lot of goods, but now many investors are selling their dollars in order to buy yen - again seen as a safe haven due to its relative stability – which strengthens the currency, but means Japanese exporters earn less.

Why is this hurting world markets?

One rule is that markets don’t like uncertainty, and Mrs Clinton was set to be predictable in her policies and actions whereas Mr Trump is the opposite.

But it goes a little further than this. Mr Trump has been extremely vocal in his criticisms of a number of things, including China’s economic policies, the World Trade Organization - which promotes global trade through the regulation of tariffs - immigration, the purchasing of energy from overseas, and even NATO.

Many of these are seen as faulty but essential to the governance of the status quo worldwide, and although the machinery of government moves slowly - especially in the US - the fact is that nobody knows what’s going to happen now - perhaps Mr Trump’s rhetoric has been for show and he’ll reel it in, as some hope, or he may fight for the beliefs that have won him the seat in the Oval Office.

What makes this question doubly compelling is that the Republicans have won control of both the House and Senate. This means that the gridlock we all witnessed when Republicans did their utmost to block outgoing President, Mr Obama’s policies has, in theory, been removed. But it must be remembered that many senior Republicans are no fans of Mr Trump.

As Joe Amato, president and chief investment officer in equities and Erik Knutzen, chief investment officer in multi asset class at Neuberger Berman, say: “A Trump administration is likely to be better for the traditional energy sector than a Clinton Presidency, and less damaging to the healthcare and financial sectors. United government may also remove the partisan obstacles to meaningful infrastructure spending and corporate tax reform, particularly the issue of profit repatriation – although it is useful to remember that Trump is far from popular among many traditional Republicans.”

Profit repatriation is of particular interest to many, highlighted with Apple’s case, which holds nearly $200 billon overseas. The reason the company hasn’t brought that back into America is because of what it believes to be a punitive repatriation tax rate of 35%. Mr Trump has promised to cut this to 10%.

 

What does this mean for me?

At this point, nobody knows. As Dominic Rossi, chief investment officer in equities at Fidelity International says: "We are heading into a world of unprecedented political risk which calls into question the pillars of the post WWII settlement. It’s unsurprising investors are heading for cover.”

He goes on to say: “The immediate impact will be on the Fed. The probability of a hike in interest rates in December, followed by two further hikes in 2017, has fallen sharply.”

Adrian Lowcock, investment director at Architas, says: “Trying to predict how things will progress over the next few days and weeks is not easy. It is important to remember short term swings have very little to do with long term performance. Investors should ensure they are well diversified, have protection, such as gold, in their portfolios and treat any weakness in markets as an opportunity. Strange as it may feel now, the world will quickly adjust to having President Trump.”

This is sentiment echoed by Tom Stevenson, investment director for Personal Investing at Fidelity International, who warns that investors should "keep their heads". He says: “With a shock Trump victory, it is important investors keep their head, now more than ever. The initial market reaction is certain to be messy and in the short-term risk-assets such as shares, energy and industrial commodities will be hit hardest while investors seek shelter where they can find it in government bonds and precious metals. 

"At times like these, a balanced portfolio will provide some protection but it is unlikely to prevent some painful losses in the short term." 

However, some experts say that this could be an opportunity to buy, with volatility not being the risk some people see it as, but something that can be exploited instead - which many successful investors do.

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