Donald Trump is to be the next President of the United States of America. The culmination of a highly controversial campaign saw Republican candidate Trump take traditionally Democrat states in what has been dubbed a “protest vote”.
The US dollar plunged against its major counterparts on the news, as fears over Trump’s shock victory spooked markets. The likelihood of a December interest rate hike have fallen as the economic outlook under a Trump presidency is unclear.
The real estate mogul crossed the 270 electoral college votes needed to become the 45th President of the US of America. Trump won key states of Florida, Iowa, Ohio, North Carolina, Pennsylvania and Wisconsin, defeating Clinton with a 276-218 lead. Several states are yet to declare but Trump’s victory is secure.
The senate remains under the control of the Republicans, meaning Trump will have greater powers to push through his widely conservative policies. We gauge the reaction of investment professionals below.
Dominic Rossi, Global CIO Equities, Fidelity International
We are heading into a world of unprecedented political risk which calls into question the pillars of the post WWII settlement. It is unsurprising investors are heading for cover.
The immediate sense of bewilderment at the shift rightwards in American politics will need to give way to a more sober risk assessment.
The immediate impact will be on the Fed. The probability of a hike in interest rates in Dec, followed by two further hikes 2017, has fallen sharply. The dollar which has been trending higher in anticipation, has consequently reversed. Both were threats to the bull market, and these have now been postponed. Monetary policy will remain accommodative.
Republican control of both Houses offers an opportunity to break the political gridlock of recent years in domestic areas of policy. There will be an eagerness to roll back many Obama initiatives, above all Obamacare. But none of this will convince investors in the short-term.
HyungJin Lee, Head of Asia Equities, Barings
If Trump’s victory creates longer-term volatility that causes a significant flight to safety to assets such as the U.S. dollar and gold, then the Indonesian and other Southeast Asian markets and currencies could be negatively impacted, as has been the case in the past.
We are aware that such a scenario is a plausible one. Although Trump’s administration could negatively impact U.S. and China relations, we believe other factors, such as the secular slowdown of China’s economic growth, the weak Renminbi and the rebalancing of the country’s economy toward a consumption-driven paradigm will have a greater long-term impact on China and other Asian equities.
Quentin Fitzsimmons, Portfolio Manager, T. Rowe Price
Apprehension over Trump’s protectionist agenda could lead to reduced global growth expectations – because the United States could end up with an adverse mix of slower growth and marginally higher inflation.
Bond markets globally are likely to see upward pressure on yields over the long term, a steepening of the yield curve. US protectionism would be very disruptive to investment flows and planning. We also should be really concerned about the risks to emerging markets and how they will behave, starting with Mexico.
When faced with volatility, central banks tend to kick the ball further into long grass – so they may end and maybe deepen their easing cycles. The Fed’s credibility is going to be under pressure, and that is an international story, not just a national story.
Russ Mould, Investment Director, AJ Bell
A drop in stocks and gains in safe haven assets like the yen and gold are textbook knee-jerk reactions to unexpected events. However, once they sit down and think more clearly markets will need to consider long-term issues such as protectionism and inflation as potential dangers and a pro-growth agenda as a potential benefit when they address what a Trump Presidency may mean.
The biggest long-term downside risk is posed by Trump’s protectionist, even isolationist stance, for two reasons.
First, economists agree on very few things but one point of consensus seems to be that the introduction of tariffs in the 1930s made a difficult situation an awful lot worse than it would have been otherwise. There is already clear evidence of slowing international trade flows and tariffs would be a further burden on this front.
Second, tariffs and protectionism are inherently inflationary. Rolling back the disinflation prompted by two decades of global supply chain management would spook bond markets and potentially mean central banks have to take interest rates higher more quickly than expected. The Fed may therefore pause in December but could find itself playing catch-up, if Trump does impose tariffs on imports from Asia, Latin America and Europe – a prospect which is likely to weigh on emerging market stocks particularly heavily.
