From the blog: Donald J Trump has been elected president of the US, sparking marked but short-lived market fluctuations and suggesting that you probably shouldn’t take investment advice from a pollster.
We’ve said goodbye to experts, David Bowie and positive real yields over the course of 2016, but will the advent of President Trump really bring about the further descent into chaos predicted by some pundits?
For long-term investors, that case looks hard to state at the moment.
We’ve said goodbye to experts, David Bowie and positive real yields over the course of 2016, but will the advent of President Trump really bring about the descent into total chaos predicted by some pundits?
For long-term investors, that case looks hard to state at the moment. Equity and bond markets have seen some volatility, with major inflows into safe haven assets like gold and Japanese yen.
The big loser since the election result has been the Mexican peso, which slumped on the back of fears that the president elect’s tough stance on immigration and foreign trade will hurt the as yet unwalled country.
But Jignesh Sheth, head of investment strategy at JLT Employee Benefits, was not persuaded of the severity of market fluctuations following the vote.
“The comment on the market volatility has probably been more severe than the volatility itself,” he said.
Looking to the long term
Pension funds should not, and rarely do, make calls on short-term market movements. The focus for investors might therefore turn to Trump’s policies, which have been somewhat hard to pin down during a campaign which has largely centred around trading insults and allegations.
One theme that did emerge early on in the campaign was his mistrust of China, and Trump even pledged to impose a 45 per cent tariff on imports from the eastern superpower.
On face value that might not harm all American business. “This could be good for US equities, particularly more domestic-focused US equities,” said Sheth, before adding that companies importing goods from China would suffer in equal measure.
Trump has also repeatedly stressed the importance of investing in infrastructure, which saw the stock price of building materials company CRH reach a nine-year high on Wednesday morning.
Stay the course
Whichever companies prove to be the individual winners and losers of Trump’s policies, the greater threat is surely that to the growth of the American economy and the health of global markets, as well as geopolitical change.
Given the total lack of predictability surrounding the president elect, it seems difficult to translate such prophecies into any sort of meaningful strategic decision for schemes.
Even avoiding US investments could backfire, according to Patrick O’Sullivan, managing director in Redington's investment consulting practice.
“By trying to position yourself away from it you might expose yourself to unintended risks,” he said, adding that European stocks are typically more volatile than their American counterparts in times of market stress.
He said Redington would continue to advise its clients to take a diversified approach to investment, derisking where possible and keeping a focus on factors such as employer covenant.
Scheme overreaction then is perhaps the most immediate threat from a Donald Trump presidency.
Trump could damage the global economy, especially if he has the backing of a Republican-dominated Congress. But investors should not be drawn into reacting to his rhetoric without a clearer picture of his policies.
