Royal London Asset Management (RLAM) shares its views on the market impacts of the election of Donald Trump as the 45th president of the United States of America, including:
Commenting on the impact for global markets, Trevor Greetham, Head of Multi Asset, said:
“Here we go again! People who lived through the UK Brexit referendum were treated to an eerie re-run last night as America elected Donald Trump president against the expectations of pollsters, book makers and investors.
“Markets don’t like uncertainty and Donald Trump is an unknown quantity as far as US economic policy is concerned. Much of what we do know, about his protectionist anti-trade policies for example, isn't positive but the US political system includes many checks and balances and the choice of President is unlikely to impact global markets or the world economy for long. There is also a silver lining for financial assets that a surge in volatility may make a December Fed rate hike less likely.
“Market reaction so far has been as we expected with S&P stock futures and Asian equity markets initially down by about 5% but starting to rally, bond futures up (though nothing like the Brexit shock) and the oil price off. The yen is strong and Australian dollar weak. Don't ask about the Mexican peso.
“The risk off move could run for a while, but in our multi asset funds we look to buy stocks on signs of panic, and a classic contrarian buy signal is developing. We had lightened up equity exposure a week ago, when the markets were pricing in a Clinton victory, so will look to redeploy those assets and possibly more at lower prices. We are likely to add to our overweight in the emerging markets equities, where dollar weakness is a positive. With global growth picking up and inflation starting to rise, commodities could also do well for a while.
“If Brexit provides a roadmap for investors, stock prices could be making new highs again by year end.”
Commenting on the impact for global equities, Mike Fox, Head of Sustainable Investments, said:
“Politicians are struggling to connect with voters. Technology, globalisation and overseas manufacturing have rendered obsolete many well paid careers that previously were the mainstay of households in the US and across the developed world. Politicians with anti-immigration and anti-globalisation policies have found a readymade base of supporters.
“Innovation, immigration and free trade have however been the mainstays of much economic growth in the last few decades. Policies that go against this are unlikely to be helpful for economic activity, the prospects for which are increasingly uncertain.
“Despite this industries such as Technology, Healthcare and Infrastructure will continue to thrive due to them addressing genuine social need through innovation and provision of essential services. These are the areas we are looking to add to into any market pullback.”
Commenting on the economic effects of the election, Ian Kernohan, Economist at RLAM, said:
“The election of such an apparently unpredictable character to be US president is a major surprise for markets, and comes ahead of a series of important European votes, starting with the Italian referendum on December 4th. As with the Brexit vote, it’s yet more evidence of a sense of disaffection with the political establishment.
“While Mr Trump’s mandate is clear, the exaggerated rhetoric of a political campaign often gives way to the realities of power. Many US Presidents find themselves constrained by Congress, and while Republicans will be dominant on Capitol Hill, the new President is not representative of his party on fiscal policy or free trade, his two key platforms.
“Mr Trump's fiscal stimulus plan would be supportive for US economic growth, however with trend growth lower thanks to a productivity shortfall and structural demographic pressures, it is difficult to see the US economy growing much more rapidly without running into overheating inflation, and a more hawkish Fed, although Mr Trump’s election may delay a December rate hike. Restrictions on immigration will also be a constraint on labour supply growth.
“His protectionist stance, even if only implemented in part, would be inflationary, via raised tariffs and duties. In summary, his proposed mix of policies is not friendly for bond markets and suggests for a steeper yield curve, which is already beginning to be reflected in global markets.”