Henderson: Trump presidency: investors confront the new world

Investors around the world are today dusting off the Ready Reckoner* they never expected to need. The polls were tight, but there was very little expectation of a Trump Presidency and the Republicans both retaining control of the House of Representatives and commanding the Senate. At the time of writing, stock markets around the world have fallen and the dollar has not unsurprisingly been marked lower as investors mark to market this new world. But beyond the knee-jerk reaction, what does this mean for markets and for individual sectors? 

Potential for fiscal stimulus

Given the unknowns that come with a new US President that has never previously held elected office, we can expect global business confidence, already fragile and reeling post the surprise decision by the UK to vote to leave the European Union, to be damaged further. It is hard to argue that risks to global growth are anything but to the downside. However with a Republican stranglehold in the Capitol, Trump’s much-vaunted intention to invest aggressively in domestic infrastructure will likely act as significant fiscal stimulus to the US economy, albeit with a likely lag. With the US stock market amongst the most highly valued globally, we would expect to see a de-rating, with growth stocks probably hit the hardest. 

Sector beneficiaries

By sector, we see the obvious beneficiaries as being those exposed to infrastructure expenditure – so selected industrial and technology companies. President-elect Donald Trump has vowed to do away with ‘Obamacare’; this is clearly negative for large sections of the healthcare sector, though for the pharmaceutical sector, the Clinton-based pricing overhang will be removed and we should expect stocks to rally accordingly. Trump’s disdain for the environment has been much discussed; we expect to see energy stocks rallying. But as a global investor, the implications for the broader world are clearly very significant too. Most US presidents start by focusing on the domestic agenda on which they have been elected, but Trump has been elected – and now has a mandate – to shrink America’s influence and impact upon the world. 

Potential tailwinds for select EMs

With the dollar weaker, so the safe haven yen is stronger – and a higher yen is bad for Japan. But a weaker dollar is a useful tailwind for emerging market (EM) equities – an asset class that we continue to focus upon, given the benefit of lower valuations and, in some cases (though not for Mexico), relatively attractive prospects for growth regardless of the trajectory of the US economy. However, in a year of political surprises with populism to the fore, every global investor’s attention will inevitably turn to Europe. Perhaps we will see modest fiscal expansion with European Central Bank-related stimulus in place to counter the short-term impacts of a slower US economy, but the focus will swing pretty quickly to the upcoming Italian referendum, the French Presidential elections in April, and the elections in Germany due next Autumn. What price some further anti-establishment success and with it heightened risks to the already fragile growth outlook for Continental Europe?

*A book or table listing standard calculations or other types of standard information; used colloquially here to mean reassessing available market information.

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.