It's another blow for pollsters and bookmakers when Trump won the US election. The American public has voted for a businessman with little experience of government. His policies championed the common man more convincingly than even the party of the common man. He also promised considerably more in financial gain to the US population, but what does that mean for investors?
It’s another blow for pollsters and bookmakers as Trump has won the US election. Last night was uncannily like the EU Referendum. It started with a 20% probability of a Trump victory that rapidly escalated following early exit polling results. Trump has achieved this convincing victory despite having little on-the-ground campaigning presence – something that suggests the underlying change in popular sentiment is great indeed. The American public has voted for a businessman with little experience of government. His policies championed the common man more convincingly than even the party of the common man. He also promised considerably more in financial gain given his promises have been unfettered by the need of conventional politicians to demonstrate responsible fiscal governance.
Trump will be inaugurated on 20 January and, until then, will be occupied by the task of assigning 4,000 jobs to prospective members of his administration. During this period, there will be an uneasy truce between Trump and the Republican establishment as representatives of the latter recalculate their self-interest in the light of last night’s outcome. Trump has an unexpectedly strong mandate, with Republicans having won a clean sweep of the Presidency, the House and the Senate. This means that some of his policies will certainly be enacted, with those plans being made clear within his first 100 days of office. Republican congressmen will feel duty-bound to support Trump during this honeymoon period.
The principal concern is how to fund those policies, which combine massive investments in infrastructure, the police force and the military, plus the rejection of trade deals, and massive reductions in personal and corporate taxes. Short term, it’s hard to see how US government bonds can stay at current prices in the face of this impossible task. The impact on stockmarkets is not so clear, with US companies among the main recipients of those tax cuts.
The other main concern is geopolitical. Trump’s hostile campaign rhetoric should be enough to prompt backlashes from China and Mexico in particular. During his nomination campaign, Trump was asked who he consults with most on matters of foreign policy. "I’m speaking with myself, number one", he replied, "because I have a very good brain and I’ve said a lot of things". This man’s finger is now on the button that determines the future of humanity.
We had been reducing risk in our portfolios over the last few months in the light of elevated levels of political risk. Last week, Clinton’s latest entanglement in the email scandal prompted us to reduce risk further. We reduced our Emerging Asia exposure on the basis that Trump had specifically targeted China in his statements on trade policies. We removed most of our US Dollar exposure and replaced it with Yen on the basis that the Dollar would no longer be regarded as a safe haven in the event of a Trump presidency.
We are currently in ‘wait-and-see’ mode. Investors will weigh Trump’s campaign promises with the likelihood that any will get enacted, in what form, plus their timing, and the likely consequences. They will have to judge his ability to learn the ways of government and foreign policy. Most will probably give him the benefit of the doubt in the short term. The real test will come as his presidency develops, because it will most probably be novel, and most probably uniquely challenging.
Chief Investment Officer
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