Donald Trump’s victory in the US presidential election has been called “Brexit all over again” as investment firms warn of an environment of unprecedented political risk.
Trump was declared the winner of the election after the results had come in from 45 of the 50 states.
Investment firms have reacted warily with M&G Investments macro fund manager Eric Lonergan saying the result is like a repeat of Brexit and shows a surge in anti-establishment sentiment.
Lonergan says: “The critical unknown is whether a Trump presidency pursues the policies of Trump the candidate, in particular his anti-trade, anti-China and anti-Mexico policies. Reason suggests that Congress and financial markets will regulate his ability to act. It is equally possible that these campaign rally cries are abandoned with the responsibility of power. But the real concern is that he will do what he says.”
Fidelity International global equities chief investment officer Dominic Rossi adds: “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. The immediate sense of bewilderment at the shift rightwards in American politics will need to give way to a more sober risk assessment.”
Rossi says the immediate impact with be on the Federal Reserve with the likelihood of interest rate hikes in December and next year falling.
He says: “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.”
Rossi adds: “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.”
Miton US opportunities fund manager Nick Ford considers that any “knee-jerk” sell-off is likely to be short-lived.
He says: “We suspect there is a considerable amount of money on the side lines that will be looking to “buy the dip”. Sectors that should do well once the dust settles include financials and consumer cyclical stocks. Trump is known to have opposed further regulation of the banks which have recently had to curtail lending following more onerous capital requirements during President Obama’s tenure.”
Ford adds: “Any sense that capital ratio requirements might be relaxed could give the sector a shot in the arm. Trump’s plan to reform the tax code and aggressively cut both individual and corporation taxes should boost consumer spending and business investment assuming he can come up with a credible plan to finance his proposals. This is a good backdrop for retailers and restaurants which would also escape Clinton’s plans to raise the minimum wage which is paid to many employees in the sector.”