Donald Trump’s victory in the US presidential elections is viewed by many investors as similar to the Brexit vote in many regards, with a majority of them saying that although it is expected to cause some uncertainty, it will only be over the short-term.
However, there would be some immediate consequences for investors, including the Australian market.
AMP Capital reminded investors of what happened after a Yes Brexit vote, where markets initially experienced a knee jerk sell off but after a few days global markets had moved on and focused on other things and shares had begun to rally again.
It also reminded investors that Brexit saw sharp share market falls only to see shares quickly recover later on.
According to Eaton Vance Investment Manager chief equity investment officer, Edward J.Parkin, it was now important not to overeat and take a long-term view.
“Setting aside the likely near-term uncertainty, this is not too different from what would have happened under a Clinton Presidency,” he said.
However, when discussing the implications of the US election for Australian investors, AMP Capital noted that both Asia and Australia were particularly exposed to a period of policy uncertainty and further share market weakness or at least volatility in the short-term given their regional high trade exposure.
The company also stressed that Trump’s victory was also negative for ‘risk assets’ like shares and the Australian dollar in the short-term but, according to the company, if Trump became more pragmatic and conciliatory as President, the short-term weakness would provide some buying opportunities.
However, if Trump chose to follow the ‘global trade war’ path, it could have heavy consequences for Australia as it was particularly vulnerable and dependent on trade with the US, with exports at 21 per cent of gross domestic product (GDP) in Australia against 13 per cent in the US.
Although some of the new economic policies of the President-Elect could also provide a boost to the US economy, such as a combination of big tax cuts and increased defence and infrastructure spending, the Fed would be less likely to hike rates in December and, as a result, the Australian dollar may suffer from a threat to trade and the initial “risk-off” environment, according to AMP Capital.
The majority of the commentators agreed however that ‘more will emerge over the coming weeks’ and it would depend on the future decision of the American President-elect and his tone and rhetoric.
Columbia Threadneedle Investments’ global head of equities, Mark Burgess, said: “The US electorate has voted for the change, but it’s worth remembering that Trump’s stated policies have been somewhat thin and we are unsure which of his pre-election announcements will result in firm policy-makin”.
“More will emerge over the coming weeks, but in the meantime markets are likely to remain volatile as they deal with the ongoing certainty.”
