In this climate, it’s easy to be pessimistic, but what we historically see is a return to normalcy once the mood calms. It’s also important to remember that Donald Trump will not have unrestrained power, as he will require support from Congress to pass legislation. The Republicans held on to the Senate and the House of Representatives but there is still a lot of sore wounds in the Republican party that will not make it easy for Trump to push through some of his more audacious proposals, (such as building a wall along the Mexican border or large scale tax cuts). Once these burnt bridges have been fixed, however, there is a greater chance we may see more cross-party co-operation – something that Obama struggled with throughout his two terms.
That said, we can’t afford to be dismissive of what this means for the global economy. Whilst the initial response to Brexit has been relatively restrained, a significant change in direction by the world’s largest economy is likely to have wide reaching effects on global markets.
America has always encouraged other countries to import and export goods without restrictions but Donald Trump is about to change all of that. Throughout his campaign, he talked a lot about controlling immigration and international trade, so we are likely to see policies that raise the cost of doing business with the US. Companies are also likely to take a risk-averse approach to business growth until the full extent of the results are understood and few will be out looking for new investment during these uncertain times.
It will be harder to judge how the rest of the world will react but we all know about Trump’s high regard for Putin, so a better relationship with Russia could pave the way for reduced risk in the Middle East. In the Far East, China will likely gain in influence and all eyes will be on the Trump administration to see how that important relationship is managed going forward.
So what could that mean for investors? As always, political risk needs to be taken into account when investing, so we believe investors should always take the long term view and not make hasty decisions driven by the current emotionally charged nature of the campaign.
We are likely to see substantial volatility in financial markets and a lower price for stocks and shares. This does not mean investors should necessarily rush for the exit, as this could also provide an opportunity to take advantage of undue weakness in the markets.
Our approach at Investec is to maintain a portfolio of diverse investment assets of the highest quality that include blue-chip shares from large, well established companies and fixed income securities or bonds issued by reliable corporations or governments.
Our team of Researchers and Investment Managers will also be keeping a close eye on the political and financial situation as it unfolds, so follow us on Twitter to get regular updates.
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