Henderson: US-election reaction: will Europe be next?

Positives:

• Europeans (certainly Europe ex-UK) tend to be much more “Social Democratic” or more egalitarian than in the US. The extent of the voter dissatisfaction is therefore not necessarily as great.
• Valuations are on the whole lower in Europe, and asset allocators, have broadly reduced their European exposure year to date.

Negatives:

• Trump is against “Globalisation” and “Open Trade”. Europe thrives on free trade (as does the world, arguably).
• Trump may well use protectionism against many European companies.
• Cancelling Obamacare throws the whole reform of healthcare back up in the air.
• Anything with high sales to Mexico will be immediately marked down.
• Unemployment is higher in many parts of Europe than in the USA, and therefore the degree of anger with the establishment has the potential to be as great, if not greater. Politicians badly need to address this issue before a “Radical” comes up with a set of easy slogans that win over the electorate, regardless of the ability to implement or finance vague promises.
• Europe has the Italian Referendum (on reform of the electoral system) in December. A rejection is now more likely, just out of the wish to poke the establishment rather than thorough analysis. France has elections next Spring: does this fuel the protest parties or ram some sense into the established politicians? We assume the latter.
• The German and Dutch elections next year also raise the same questions.

Markets and economies hate uncertainty, and we now have more of that. Can Trump really reflate the US economy? What with? Hot air?

“When the facts change, I change my mind!” It seems prudent to take a more conservative stance for the time being and raise a little more cash. There will also be some stock specific issues to address.    

This has not prompted wholesale changes to the portfolio, if anything it reinforces our preference for quality stocks yet further. We are reducing our banks weighting at the margin, as the probability of a December interest rate hike is understandably reduced. 

Longer term, we need to consider whether a set of reflationary measures by governments (whether in the US or Europe) changes the inflationary outlook. That in turn has a further knock on impact on the valuation of “growth” versus “value”, and therefore whether we should be adding more economically sensitive stocks or names that are a beneficiary of any attempts at reflation.

Die Wertentwicklung in der Vergangenheit ist kein zuverlässiger Indikator für die künftige Wertentwicklung. Alle Performance-Angaben beinhalten Erträge und Kapitalgewinne bzw. -verluste, aber keine wiederkehrenden Gebühren oder sonstigen Ausgaben des Fond.

Die Informationen in diesem Artikel stellen keine Anlageberatung dar.