Woodford warns Trump could end emerging markets ‘love affair’

Neil Woodford

Neil Woodford says he is surprised by Donald Trump’s election as US presidant and that it could end the market’s “love affair” with emerging market equities and bonds.

“We’ve had our fair share of political shocks recently but this one, arguably, trumps them all. I am surprised that Donald Trump has emerged as the winner of the US presidential,” Woodford says.

The “relatively muted” response of markets could be due to investors learning from Brexit not to overreact, Woodford says.

“The election result could, however, puncture the love affair that the market has had this year with emerging market equities and debt.”

Woodford says the constraints of office mean that Trump is likely to be more moderate as president than his campaigning would suggest.

“The Fed is likely to have more than half an eye on its role as global financial market policeman and the uncertainty that this election result creates for the global economy and, in particular for emerging markets, could weigh on its policy decision in December.

“Overall, I expect the momentum in the US economy to continue. I expect modest growth in 2017, relatively muted inflation and, with the prospect of a slightly more stimulative fiscal policy and the absence of rate hikes, I don’t think a Trump presidency foreshadows a US recession.”

Woodford says overall his “initial judgement” is that a Trump win “doesn’t change the fundamental assumptions that I have incorporated into my investment strategy”.

He points out that healthcare stocks had been worried about a Clinton win and that in California proposition 61, which would have limited the price of prescription drugs in the state, was defeated.

As a result, Woodford expects this area of his portfolio to benefit from positive sentiment.

Woodford says he is keeping his eye on “several significant elections” in the Europe over the next 18 months “which could be profoundly important for the future of the eurozone project”.

“It would be wrong to assume that America has a monopoly on disgruntled voters and we will keep a very close eye on political developments.”