Wealth managers: What Trump’s win will mean for equity markets

By ​Ben Willis, Whitechurch Securities, Andrew Merricks, Skerritt Consultants and Chris Darbyshire, Seven Investment Management.

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Nov 14, 2016

Ben Willis, head of research at Whitechurch Securities

The pollsters need to rip up the rule book and start again. For the second time this year they have got it incredibly wrong - and wrong-footed global markets in the process. After the initial panic, however, calm has been restored remarkably quickly.

It will take time to assess the impact of Trump’s victory, but this change in US politics will provide both opportunities and threats for longer-term investors.

Initially, the clear winners appear to be US infrastructure and business. Trump has pledged to rebuild roads, rail, hospitals and schools, and promised US corporations will pay no more than 15 per cent tax on profits: the biggest concession since Reagan’s tenure.

Fossil fuel companies could benefit given Trump’s disbelief in global warming and promotion of US energy independence. Pharmaceuticals could too, with price controls less of a concern than if Clinton had won. Finally, banks could flourish as regulations are potentially relaxed.

Overseas, the protectionist policies could provide a threat to exporters. There could be pressure on Asia Pacific and emerging market currencies and equities, particularly given the strong run they have had year-to-date.

UK companies could be given a boost in terms of negotiating trade deals, given Trump’s supportive stance of Brexit. That said, Boris Johnson, who once said “the only reason I wouldn’t visit some parts of New York is the real risk of meeting Donald Trump” will be one of many senior figures eating humble pie in an attempt to gain favour with the most powerful man in the world.

Andrew Merricks, head of investments at Skerritt Consultants

Trump’s victory is a further indication the world has changed. From an investment angle this has serious implications, as much of the old mantra is outdated. As a group, politicians, policymakers, bankers and economists are of a certain age. They attended the likes of Harvard and Oxford around the same time and learned the same theories based upon reality in the 1970s, 80s and 90s.

They cannot get their heads around the fact these theories are contemporarily challenged. But that means you have to admit you are wrong; something that group are not prone to do. So what does it mean for UK investors?

After a wobble, we suspect the dollar will stabilise and remain one of the stronger currencies going forward. We suspect policymakers will start to “get it”, particularly in Europe where the electorate are stirring. This will probably lead to an easing of policy, which will encourage consumer spending and ultimately be inflationary. After the initial knee jerk reaction, the yen will continue to weaken, as will sterling. One clear winner will be biotechnology and healthcare stocks.

If we are right about the dollar we will remain underweight emerging markets and commodities and continue to support positions that benefit from increased consumer spending in the UK and Europe (the polarisation of society is a subject for another day).

We will also adjust for what Brexit may mean in its hardest form (bad for property and slower growth) but keep a wary eye on the likelihood it will be softer than many imagine, particularly if the German and French politicians do not begin to “get it” as their own elections approach. Keep expecting the unexpected.

Chris Darbyshire, chief investment officer at Seven Investment Management

Trump’s victory is a game-changer. We now have a President broadly aligned with both legislative houses, who has promised great things. The opportunity to blame partisan politics for inactivity dies with his inauguration on 20 January. Things need to get done (or, at least, announced) and I doubt any projects will be outsourced to foreign contractors.

Within equity markets, we are favouring US small-caps and the US banking industry. We like the former because it captures the upside from domestically-focused fiscal stimulus, and the latter because “Trumponomics” should accelerate the end of excessive regulation of the banking sector, giving US institutions a significant advantage over their global competitors. A bottom-up approach would also target the energy sector and other probable beneficiaries of infrastructure spending.

We are increasingly wary of emerging markets, with China and Mexico being the expected targets of anti-trade policies. The risk with this view, however, is that emerging markets will be big beneficiaries of tax cuts for US consumers, who would no doubt celebrate by going out and buying Chinese imports. So they could actually move significantly in either direction, depending on the nature of Trump’s rhetoric over the next few months.

So far, he has appeared to soften his stance on the most extreme policies, something that should be greeted with great relief by stockmarkets globally.

That said, his “contract with the American voter” brings other risks, such as the blow to bond markets struggling to understand exactly how his promises will be funded.

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