Donald Trump proved Tuesday he and his operation have been massively underestimated, polls being proved almost uniformly wrong and markets panicking accordingly. Indeed, it seemed a replay of Brexit, with prediction markets going south due to an increasingly unreliable trust in public institutions and forecasts. Nevertheless, the reality is that Donald J. Trump will be the 45th President of the United States. HedgeNordic has culled views and opinions from across the investment spectrum to try to gain an accurate picture of the implications at this point in time.
The selloff in global equities due to the uncertainty Mr Trump and his campaign platform represent lends itself to a wider confusion about both the rally to treasuries and the nature of the unexpected Republican sweep of government. Mr Trump’s campaign promises notwithstanding, the Republican congress is likely to provide a better indication for market behaviour, for example by easing concerns about deficit spending. Markets were already complacent leading up to the election, suggests Giordano Lombardo of Pioneer Investments, but opportunities may yet arise for active managers during the equity selloff. Nonetheless, given Mr Trump’s rhetoric on trade and his generally protectionist platform, the broad picture is that Emerging Markets are likely to remain on the defensive. Given that Mr Trump’s policy agenda is unclear, Lombard Odier also predicts uncertainty due to the gap between campaign rhetoric and political reality, but foresees that likely tax cuts through the Republican Congress will boost inflation and weigh on bond markets, the concern about protectionism and tariffs being likely to increase the pressure.
Ed Perks, CIO of Franklin Templeton Equity, suggests Mr Trump’s victory likely contributes to continued market equity volatility over the longer term, given that more elements of uncertainty have actually been introduced since Mr Trump’s win than before. Stefan Kreuzkamp, Chief Investor with Deutsche Asset Management, concurs, but suggests the outlook will not remain as bad in the longer term, considering that investors willing to look beyond the initial risks should have good investment opportunities given that historically, markets prosper with a Republican administration. Allianz Global Investors suggest that Mr Trump’s protectionist and nativist rhetoric is a threat to U.S. and global growth, and that the ensuing flight into gold and treasuries could turn Asian bonds and European equities into a “bastion of stability” in the short term, with a risk-off fixed income environment, lower yields and a flatter curve. T. Rowe Price is equally bracing for a highly uncertain investment environment, assuming that Mr Trump’s plans for reducing deficit spending are unlikely to stimulate jobs and the environment for economic growth.
Leon Cornelissen, chief economist with Robeco, underlines the potential for a negative climate for equities in the coming weeks, with sovereign bonds benefiting despite inflationary risks. His view is that the current rush towards safe havens like gold and the Japanese Yen and the liquidation of some positions through forced selling will send asset prices down even further.
At the immediate level, there are concerns that the U.S. Federal Reserve may postpone its anticipated interest rate increase even further due to increased fears of a recession under Mr Trump and a rush from investors to sell out equities. Sebastian Radcliffe, of Jupiter Asset Management, suggests there is a real likely short term impact on equities due to the uncertainty surrounding Mr Trump, but that Mr Trump’s own comments so far on the importance of restoring American infrastructure imply a more long-term acceleration of the economy. Charlie Thomas, also of Jupiter, adds that the pressing need for infrastructure investment will bode well for companies providing solutions in the water, rail transport and smart energy sectors, despite clean energy subsidies already being phased out under current policy. Peter Hakansson, CEO with East Capital, suggests the projected increased spending on infrastructure will have a positive longer-term impact on both the US economy and on commodities.
In terms of emerging markets, JOM Portfolio Manager Juuso Mykkänen, of the JOM Silkktie Asia and Indonesia Funds, does not see any large effects on Asian domestic-driven economies. Most of the concern is focused on North-Asian countries, including China, and less so for the Southern/SE countries who do not export as much to the U.S. For his part, Paul McNamara, investment director with GAM, predicts that the best Emerging Market prospects are those not dependent on globalization and the perception of the U.S. role therein: Considering the appeal of Mr Trump’s nativist campaign, an understandable investor reaction is to bet against globalization: that said, Emerging Markets are currently doing better than even after Brexit, with good prospects in Brazil, Russia and European economies in general.
Not everyone is upset with the result: Rhenman, the Nordic healthcare investment specialists, for instance, stand to capitalize from a “landslide upside” from the outcome. Hillary Clinton’s and democrats’ likely commitment to enforcing healthcare and ACA mandates despite the problems involved have provided an opening for healthcare investment. “If you add into the fact that Proposition 61 – which would have capped state spending in California on prescription drugs – was defeated and the Republicans came through so strongly is clearly positive for healthcare investment in the short term,” Mr Rhenman said. Mr Trump and the Republicans will be looking to restructuring or completely replacing the existing health care model in the U.S., but in the immediate term, Rhenman will be scanning the U.S. market for stocks that have been beaten down in the immediate aftermath of Mr Trump’s victory.
In addition, Nigel Green, founder and chief executive of deVere Group, suggests global investors and high net worth individuals are in a position to take advantage of Mr Trump’s victory. The initial shock to the markets can provide key buying opportunities despite Mr Trump’s protectionist rhetoric. Several sectors could do well, he says, given Mr Trump’s antagonism to environmental measures, the mining and oil sectors among them.
Although many are spooked about Mr Trump’s victory, considering the extreme campaign he has run, both Mr Trump and markets are likely to wake up to the reality that given they are mutually indispensable, moderation may be the order of the day for both – despite everything.