"We are heading into a world of unprecedented political risk": Seven investors react to Donald Trump's victory

 
William Turvill
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Presidential Candidates Stump At Iowa State Fair
Donald Trump has beaten Hillary Clinton to the White House (Source: Getty)

In a poll last week, 80 per cent of financial advisers predicted a Donald Trump victory in the US election would have a negative impact on investments.

Just four per cent of the 202 UK independent financial advisers surveyed by Opinium Research said it would be positive.

With that in mind, here are the early reactions of some investors:

Martin Gilbert, chief executive of Aberdeen Asset Management

This is a time for a calm head when looking at markets. Often the best course of action is not to panic and wait to see how things develop. Markets in time will settle down, Trump will not become president until January and between now and then it will become clearer what a Trump presidency will look like. His acceptance speech was inclusive and will hopefully help allay some investor fears.

Read more: Here are the front pages after the Trump win

Lars Kreckel, global equity strategist in Legal & General Investment Management

Uncertainty typically declines quickly after an election, but in this case the possibility of unexpected announcements, sudden policy changes and ill-advised comments is likely to be a feature for some time to come. It is a cliché that markets don’t like uncertainty, but we would now expect a higher risk premium for US assets.

It’s a similar story for fixed income assets. While an initial risk-off reaction has pushed bond yields down, it strikes us that many of Trump’s policies could ultimately be inflationary. Protectionist policies could drive up import prices, anti-immigration policies could boost domestic wages and significant fiscal stimulus could add further to inflationary pressures. However, all of these are second-round effects that could take time to materialise. This divergence between short-term and medium-term risks is also reflected in Fed expectations. The increase in current uncertainty has reduced market pricing of a Fed rate hike in December, but the longer-term inflationary pressures could lead to a faster path of rate hikes once markets and circumstances settle down…

Much of the medium-term market impact hinges on the policy mix Donald Trump will ultimately implement. What will President Trump actually do? Unfortunately, the campaign has been a competition of personalities rather than policies. As Trump describes himself as ‘totally flexible on very, very many issues’ it will take some time until we know how much of the pre-election rhetoric will be transformed into actual policies.

Russ Mould, investment director at AJ Bell

In the very short term, stock markets look set to fall given the uncertainty posed by an outsider candidate unexpectedly becoming America’s commander-in chief. Following on from the UK’s referendum vote in June, this reinforces the presence of political risk that has been absent from developed markets for most of the last two decades...

On the plus side, markets would have usually welcomed a president whose agenda includes corporation tax cuts and a substantial (if still vague) infrastructure investment programme, as both could boost a US economy which still appears to be stuck at stall speed.

The biggest long-term downside risk is posed by Trump’s protectionist, even isolationist stance.

Rebecca O'Keeffe, head of investment at Interactive Investor

Wow! In what is likely to spell the end for polling agencies worldwide, Donald Trump has been elected US president. The result sent shockwaves throughout Asian markets, with equities falling and safe havens rallying strongly - but European markets are far less bearish, with share prices lower, but not in freefall. Currency markets are reacting strongly, with the Mexican Peso falling sharply, while the Yen has soared as the markets contemplate a world with President Trump.

However, in the same way that the EU referendum result initially saw markets slump before investors worked out where the opportunities were, the big question now is what geographic areas, sectors and industries are set to benefit from a Donald trump victory and where the threats lie.

Read more: Bitcoin jumps four per cent Trump elected to the White House

Dominic Rossi, global chief investment officer of 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’s unsurprising investors are heading for cover but it is important to remember this is not the time for knee jerk reactions; investors must keep a calm head and not be drawn into the short-term noise.

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.

However, these known financial risks have been displaced by an unprecedented level of unknown political risks. We can only speculate whether Trump will follow through on his more protectionist slogans with substantive policies. Investors, particularly those overseas, will stand back and wait.

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.

Jim Leaviss, head of retail fixed interest at M&G Investments

The big implication for investors of what happened last night is this: with no income growth for most populations in developed world economies since the great financial crisis (with the exception of the one per cent), the established parties and candidates are being heavily punished in elections.

It doesn’t stop here – we have a referendum on the Italian constitution next month, and many more European elections in 2017 (could Marine Le Pen be elected president in France?).

I saw a statistic this morning where across the G7, 65 per cent of parents believe their children will be worse off than they are.

Having seen the electoral shifts in the UK with Brexit and now the US, do established political parties react by promising significant fiscal expansions? Could last night’s vote trigger the end of global austerity?

Mark Haefele, chief investment officer of UBS

The implications of this surprise electoral outcome will take time to unfold. Given Trump's limited background in politics, markets will look toward his appointments for top administrative posts for clues about his policy agenda. The result underlines again the importance of investment diversification, both in terms of regions and asset classes.

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