U.S. Elections 2016
Barings’ investment professionals provide insights on how the U.S. presidential election may impact the fixed income, equities, alternatives and real estate markets.
Donald Trump’s victory is arguably one of the greatest political shocks in recent times. For Trump, this win is the culmination of a journey that defied the odds at every turn. His first victory was in taking over the Republican Party, largely against the will of the Republican governing class. He has now used this momentum to take control of the highest political office the world has to offer.
In achieving victory, Trump has defied the political class, pundits and markets alike. Rightly or wrongly, his chosen narrative has been simple — globalization is the cause, inequality is the effect. It is a theme that we saw first in the riots and referendums in Greece, which then found firmer footing in Brexit, and has now reached its climax in America.
It is clear that this next president will have a profound effect on global markets. Trump’s mandate promotes political and economic isolationism, presidential powers that do not need the support of Congress. Markets will hope that his desire to be re-elected will create some balance. Otherwise, in one movement, globalization and the liberal economic consensus is in full retreat.
Trump’s trade policy is one area of immediate concern for markets. His most well-known campaign rhetoric involves building a wall between the U.S. and Mexico, increasing deportations and tearing up NAFTA. Outside of North America, a tougher stance on China via the introduction of tariffs and duties could significantly impact emerging markets. Trade deals with the EU and Japan may also be at risk.
Markets will likely take some respite from Trump’s fiscal policy, which he is expected to loosen as he follows through on his campaign promises. Over the near to medium term, we expect Trump to introduce aggressive tax changes, including substantial cuts to both corporates and the wealthy, and a significant stimulus package for infrastructure that will likely be debt funded.
Markets should also be prepared for a more hawkish Fed, which is a logical response to a more deficit-reliant administration. It is likely that Trump’s ascendancy will be an end to Janet Yellen’s tenure, either prematurely or by his refusal to nominate her in 2018. Yet a hawkish Fed is unlikely to go hand in hand with a stronger dollar. Ultimately, a confrontation with the Fed is likely to lead to uncertainty and a weaker dollar, even in the face of tighter monetary policy. If handled poorly, international investors may even question the default position of the dollar as the world’s reserve currency.
Domestically Trump has the support of Congress. The election saw the Republicans win both the House and the Senate. Will certain Republicans in the House embrace him, having previously refused to endorse his campaign? We would imagine this will be resolved, and over the next few weeks his all-important advisors will be announced. This will allow the new president to focus on shaping the domestic part of his policies.
Perhaps Trump will tone down his campaign rhetoric once in office. His acceptance speech did show some conciliation. He would certainly not be the first politician to say one thing and do another. Will Trump, like many of his predecessors, be flexible? This is the biggest unknown. Based on his track record, there is still much uncertainty.
Christopher Mahon, CFADirector of Asset Allocation Research
We anticipate that high yield issuers will largely weather any short-term volatility ...Read More
Trump's victory to have a profound effect on global markets ...Read More
We believe the environment remains a healthy one for emerging markets and we continue to see ...Read More
The U.S. economy remains in reasonably healthy condition and corporate earnings are fairly robust ...Read More
We don't expect any one political event, such as the U.S. Election or Brexit, to impact our portfolio ...Read More
At the end of the day, the fundamentals underlying the U.S. real estate market are sound ...Read More
The investment case for strong companies is not dependent on the president ...Read More
Infrastructure spending in the U.S. was one of the issues that both major parties actually agreed upon...Read More
Fundamentals are solid & the direct impact of the election are somewhat limitedRead More
Our focus remains on the fundamentals, following a Trump win ...Read More
Uncertainty is the big takeaway from Trump's win ...Read More
Despite a change of U.S. leadership our outlook for Asia remains strong ...Read More
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