The US Election: Trump wins, so what are the implications for investors?

Market Commentary

by Theodore Hatsis CIMA®, Head of Research, Centrepoint Alliance

What has happened?

On Wednesday 9 November 2016 the people of the United States shocked the world by voting Republican candidate, Donald Trump, as the 45th president of the United States of America (USA).

The result adds further momentum to a backlash against establishment-based economic policies.

With the Republicans sweeping to victory in the Senate, as well as in the House of Representatives, this result will have global ramifications of which – perhaps – have never been experienced before.

Within the first 24 hours the result saw Asian equity markets go into freefall. The benchmark ASX/S&P 200 index swung wildly eventually closing almost 2 per cent down.

What happens next?

It is very difficult to know what exactly might happen as a result of this.

Consequences, both financial and economically, across the world (as well as in the United States) might be shaky at first – however after the initial shock markets took a step back, took a breath, and recovered the majority of losses from the previous day. The long-term ramifications will hopefully not be as extreme as some are predicting.

Implications

The impact on capital markets will be felt both over the long and short term. We believe the fallout in makers will be short-lived and, as they did after the UK referendum, will have no lasting impact. 

In saying this – a lot will depend on how much Mr Trump moderates his domestic and global policies when he takes office. The direction the new administration takes on foreign policy including monetary and military aid and immigration, terrorism, healthcare, fiscal policy, and taxes and tariffs we be crucial.

International markets implications

The biggest risk globally is the risk of a move towards more protectionism. How extreme Trump’s trade policies are once passed through Congress and the Senate - a journey less likely to meet resistance considering the Republicans basically now control Capitol Hill, are crucial.

We do not expect an extreme fallout – however – it cannot be discounted.

Impact for Australia

For Australia the axing or renegotiating of the TPP is a negative in terms of direct trade with the US, but it will also impact exports from Asia to the US (some of which is manufactured with Australian commodities).

Negative geopolitical consequences are also a major risk for the health of the domestic economy.

Advice implications

Although Trump’s victory brings additional uncertainty into an already uncertain world – volatility is nothing new in capital markets and should not be forgotten.

We continue to believe and think it’s important, from an investment perspective to maintain a long-term focus. Remaining disciplined in your approach will bring reward.
Risk is measured as the potential loss of capital and not short-term volatility. Currently short-term volatility is dominating headlines globally and, although unsettling, speculating and making knee-jerk decisions is counterproductive to a long-term plan.

We encourage everyone to continue to revisit and review current positions to ensure they remain viable long-term solutions for clients.

This is an edited extract of Centrepoint Alliance Research News, which is available to advisers in the Centrepoint Alliance community.