- Contrary to polls, Donald Trump won the 2016 US presidential election, clinching the 270 electoral votes required to become the 45th President of the United States.
- The Republican Party won a clean sweep of both houses of Congress, holding onto its majority of the House of Representatives and the Senate.
- Global financial markets are getting rattled by the election outcome, with equity screens flashing red across the board and Emerging Market currencies declining, most notably the Mexican Peso, which fell 13% against the US Dollar at the time of this writing.
Déjà vu gripped us here at Affin Hwang Asset Management as the unfolding of the US elections and its corresponding impact on the global financial markets struck a starkly similar pattern to that of Brexit.
The rise of populism sweeping Western democracies is clearly a key theme to monitor as the outcomes of both the US elections and the Brexit referendum have illustrated the frustrations of the working classes against what they feel is an incumbent political system rigged against their interests.
However, whereby the mostly liberal anti-Trump media establishments have painted a disastrous and pessimistic world should Donald Trump win, we believe that the US political system is robust enough to impose sufficient checks and balances to mitigate some of Trump’s more radical ideas during his presidential campaign.
Central Banks are also likely to consider stepping up their easing policies if the post-election fears begin to significantly erode global financial conditions. Translating this view to the financial markets, we believe that buying on any sell-offs is a good strategy in the short-term; which was the same strategy we adopted after the Brexit referendum that has served us well. We maintained healthy cash buffers going into the US elections and are prepared to deploy cash back into the markets when we feel the timing is right.
It is difficult to gauge what a Trump victory means for financial markets over the long-term given his well-documented inclination to change his mind on policies. We will need to closely monitor his speeches and actions over the next couple of months to understand his likely policies. But based on his past rhetoric, the following themes seem to stand out – lower US corporate taxes, expansionary fiscal policies in US infrastructure funded from debt, and greater trade protectionism. All these imply that inflationary pressures in the US could begin to rise, potentially forcing US treasury yields to trend higher and pushing the US Dollar higher. Commodities could also benefit from a US infrastructure boom and higher inflation readings. Greater trade protectionism would be negative for economies that are the most sensitive to global trade. Given that the Republican Party enjoys a majority in Congress, they could increase Trump’s chances of boosting infrastructure spending and ending years of Congress political gridlock.