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Trump is in: what now for investors?

Published: 9 November 2016

After a hard fought and often controversial US election, today is seeing an unexpected Trump win spook markets around the world.

Investor nerves were tested from early Wednesday morning as a Trump victory looked increasingly likely. Dow Futures fell in the early hours. The US dollar weakened, gold prices rose and benchmark Asian indices dropped sharply.

As trading opened in Europe, indices there also fell, with the FTSE 100 down in early trading and sterling strengthening against the US dollar.

An opportunity for bargain hunters?

Market falls also characterised the immediate aftermath of the UK’s unexpected Brexit vote in June, as investors scrambled to process the implications. Alliance Trust Savings’ experience then suggested bargain hunters were out in force with trading through our platform brisk and around three quarters of investors in the market to buy.

The impact of Trump’s victory may also offer short term opportunities for those looking to buy low, into indices and stocks that - depending on further moves over coming days and your longer term views - may be left looking cheap relative to their long-term value.

Colin Maclean of SVM Asset Management says “One sector that feared Clinton and should now rally is healthcare. The major UK pharmaceuticals are exposed to the US market which was threatened by Clinton’s proposed pricing reforms.”

Maclean also points out that “Both candidates favoured increased infrastructure spending, promising to inject hundreds of billions of dollars in fiscal stimulus.” And goes on to say “There are London-listed businesses that could benefit from US infrastructure and construction, such as CRH, Ashtead and Wolseley.”

If you decide now is a time to buy – remind yourself of your long-term plan and avoid the danger of buying individual stocks or sectors that could increase your risk exposure or leave your portfolio unbalanced.

What can we expect from Trump?

With the election also seeing Congress remain in Republican hands, Trump seems well positioned to move on his policy agenda. Infrastructure aside, he favours cuts to spending and individual and corporate taxation, and has suggested he would be more protectionist of US interests internationally, with likely implications for the global economy.

Christine Lagarde, head of the International Monetary Fund, has warned that anti-trade policies “would certainly have a negative impact on global growth”.

Researchers at Oxford Economics have also estimated that a Trump victory would wipe 5% of US GDP over the next five years, taking a huge chunk off the forecast size of the US economy in 2021. A similar warning was issued in August by researchers at CitiGroup.

They suggested - as we now know correctly - that a Trump win would “deliver a shock” to financial markets, albeit possibly a short-lived one. CitiGroup added that "tightening financial conditions and further rises in uncertainty could trigger a significant slowdown in US, but also global growth”.

Keep focused on the longer-term

Donald Trump will not take over the presidency until Inauguration Day on 20 January 2017. So, whilst these forecasts may sound gloomy, it will take time for investors to fully understand and assess his policies, and the implications of those for the US and global economy.

The outlook is uncertain and uncertainty does pose challenges for investors, by increasing market volatility for example. But if you are in it for the long term, now is not the time to panic. Selling in panic can mean missing out on the biggest gains over the longer-term and crystallising losses by selling in a falling market.

Looking at the movement of a ‘normal balanced strategy’ (60% stocks, 40% bonds) after various financial crises, research by US firm Dimensional found that the worst of market times are often followed by the best of times. Suggesting that patience is usually rewarded. Past performance is not a guide to future performance.

US Elections

Remember also that regular investing can potentially help you benefit from market volatility, due to the effect of pound-cost averaging. It offers some protection against short-term market shocks and can potentially make a big difference to your investment growth over the long term.

What next?

Investment performance can be dictated by any number of external influences that investors can neither anticipate nor control, and currency, bond and equity prices will also be sensitive to the outcome of the Federal Reserve’s next monetary policy meeting in December.

The Fed had been seen as likely to increase rates in December and US inflation expectations increased after new economic data showed an acceleration in the pace of wage growth, seen as sustainable under an administration – as Clinton’s would have been - maintaining existing policies. The question now is, will the ramifications of a Trump victory change that?

Commentators are already suggesting it will. Among them, Dominic Rossi, Global CIO Equities, Fidelity International who says “The immediate impact will be on the Fed. The probability of a hike in interest rates in Dec [sic], 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.”

So take short term opportunities where you see them. And if you are in it for the longer term it remains key to maintain a diversified portfolio, keep an eye on things and stay focused on your goals.

US Elections

Important information

These articles are designed to help investors make their own investment decisions. They do not constitute a personal recommendation to invest. If you have any doubts as to their suitability you should seek expert advice. Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

Your existing pension may have valuable benefits which you might lose when you transfer.

Laws and tax rules may change in the future without notice. The information here is our understanding in November 2016.This information takes no account of your personal circumstances which may have an impact on tax treatment.

You can purchase a range of US equities through Crest as a Crest Depository Interest (CDI). A CDI is a form of UK security that represents your ownership of the underlying overseas investment. Please note CDIs are only available via your Investment Dealing Account or ISA and not via your SIPP.

Past performance is not a guide to future performance.

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