JOHANNESBURG – It was never considered a highly likely scenario, but on Wednesday Donald Trump was elected the 45th president of the United States.
The announcement came as a shock to market participants as pundits mostly predicted a win for Democrat Hillary Clinton.
The outcome highlights the growing unhappiness of voters about the status quo, faltering economic growth and rising inequality and a system that seemingly only caters for a rich minority. Many voters seem to argue that any regime change would improve the situation.
Ray Wallace, chief investment officer at Taquanta Asset Managers, says the outcome is a protest vote against the way economies are run.
The Trump win comes just a few months after Britain’s shock vote to leave the EU caused a major shake-up in world markets.
While the unemployment rate in the US is very low, the quality of jobs is not always desirable – people have been taking strain and the quality of life has deteriorated, Wallace says.
Peter Brooke, head of Old Mutual Investment Group’s MacroSolutions boutique, says political shocks have become the new driver of volatility in the investment universe.
Trump’s surprising landslide victory highlights the very strong desire for change and the inability of the elite to gauge the political climate, he notes.
“All around the world, populists are gaining on both the left and right. We believe this is a lagged impact of the global financial crisis which has resulted in very soggy global growth and rising inequality as central bank stimulus has helped the rich,” he says.
“We don’t think this trend is over and expect continued political uncertainty, moving to Europe as they start their calendar of elections.”
Deon Gouws, chief investment officer at Credo Wealth, says although he didn’t expect Trump to win, the shock factor is a lot less than during the Brexit vote.
Although markets experienced an initial sell-off, the broader reaction wasn’t nearly as extreme as during the June vote. After falling sharply in early morning trade, the FTSE/JSE All Share Index recouped its losses, closing 0.55% higher at 50 977.85 on Wednesday while European indices also recovered. Although Dow Jones futures initially predicted a bloodbath on Wall Street, the Dow and S&P500 were also in the black shortly after 18:00.
“Maybe we can argue that it was largely in the price – that the market didn’t get it that wrong,” Gouws says.
But where does Trump’s victory leave investors?
While the US Fed was widely expected to hike rates in December, the current uncertainty sparked by the surprise outcome may convince the Fed to postpone the move once again.
Gouws says whenever there is a shock in the system, markets initially go into risk-off mode, which largely explain why the rand was the worst hit currency after the Mexican peso early on Wednesday. The peso collapsed against the dollar as it became clear Trump would win the election. The rand is highly traded and reacts swiftly as investors take risk off the table.
But temporary share price slumps may offer buying opportunities.
Gouws says some sectors are also likely to do better under a Trump regime. Healthcare stocks have been under tremendous pressure over the last year – in large part due to Clinton’s healthcare policies.
These risks have subsided with the Trump win and healthcare companies should recover somewhat.
Richard Robinson, fund manager for the Ashburton Global Energy Fund, expects Trump’s win to trigger opportunities in the fossil fuel sector.
Wallace says at this stage it is too early to get a clear sense of the long-term impact – various scenarios could play out – but nothing will change overnight.
Trump mooted various protectionist policies during his campaign and wants to develop the US manufacturing industry.
Wallace says he is not sure whether Trump’s plan would be successful, but if trade tariffs are introduced it could affect economies like South Africa if it becomes more difficult to export to the US.
South Africa already has political and economic challenges and ratings agencies could view the election outcome as growth negative for South Africa.
Gouws says if you ignore the politically incorrect comments and noise, Trump was always the more business, economy and therefore market-friendly candidate. Although markets ignore this during the initial shock and sell off, the American economy could be stronger in two to three years time due to lower tax rates and other factors associated with Republican policies, Gouws says.
At this point, however, the long-term implications are anybody’s guess.
“Everybody is just dumbfounded at the moment and trying to figure out what the effects are. It is the same with Brexit – really long term, what are those effects? We really don’t know,” Wallace says.
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