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.
Emerging Market Equities
Uncertainty is the big takeaway from Donald Trump’s shock U.S. election win. That being said, the Republican president-elect’s victory is very much in keeping with the growth in populist politics and protectionist rhetoric across the western world. Investors will right now be in the process of attempting to differentiate between Trump’s actual policy positions and some of the more outlandish statements made on the campaign trail.
There are also foreign policy implications for agreements such as the recent Obama-sponsored deal with Iran, which could now come under increased scrutiny. In addition, NATO’s current status could be called into question and contributions by member states may need to be amended. This could have a negative impact on Eastern European countries.
We see a number of possible issues and opportunities for emerging and frontier markets. Mexico, China and Russia are all significant areas of investment across our portfolios—three markets where we see a Trump presidency potentially having a major impact.
Across the Mexican border, there is likely to be a great deal of apprehension as to what the coming months may bring. If we are moving toward tariffs, global trade will likely suffer and capital flows between countries may weaken—Mexico’s reliance on the U.S. could see it disproportionally affected. Almost a third of Mexico’s GDP relies on its northern neighbor and Trump’s promise of a 35% tariff targeted at U.S. companies that outsource abroad could be costly, particularly for the automotive industry. Trump has also mentioned plans to renegotiate the North American Free Trade Agreement (NAFTA), another potentially worrying development.
The loss of remittances is another possible outcome if Trump clamps down on immigration as he has promised. Remittances to Mexico from the U.S. amounted to $25 billion in 2015—2% of GDP. Due to the likely weakness in the currency’s value, this decrease may be mitigated in Pesos. A weak Peso could also provide something of a boost to domestically-focused companies.
Much of Trump’s ire has been directed at China and its economy’s undercutting of the American worker. This rhetoric culminated in talk of 45% tariffs against Chinese exports, a move that could potentially start a trade war. The global supply chain, which is highly interconnected in the IT and automotive industries, would also suffer greatly and is already facing disruption after the Brexit vote in the U.K. At this point we should note that trade policy can be changed by executive order—an intransigent Congress may not be able to intervene. If we do find ourselves in a trade war, Chinese authorities would likely act to stimulate demand, but the Chinese equity market, which has performed well in recent months, could become increasingly volatile.
Perhaps the greatest beneficiary of a Trump presidency, Russian relations with the U.S. will now undoubtedly improve. We will possibly see a reduction in sanctions in the coming months, allowing Russian businesses to more easily finance themselves. This should provide a boost to Russian companies’ prospects and may present new opportunities among Russian equities.
Markets like certainty and after the shock of the Brexit vote in the U.K., a Trump presidency is not what most investors would have wished for. Regardless, our bottom-up investment approach focusing on fundamentals is unchanged. Our aim remains to find attractively priced companies with the potential for strong long-term earnings growth, well-defined business franchises, robust balance sheets and proven management.
Michael LevyCo-Head Emerging and Frontier Equities Team
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
For Professional Investors / Institutional Investors only. This document should not be distributed to or relied on by Retail / Individual Investors. Barings LLC, Barings Securities LLC, Barings (UK) Limited, Barings Global Advisor Limited, Barings Australia Pty Ltd, Barings Advisers (Japan) KK, Barings Investment Advisers (Hong Kong) Ltd., Barings Real Estate Advisers LLC, Barings Real Estate Advisers Europe LLP, Baring North America LLC, Baring Asset Management Limited, Baring International Investment Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management (Japan) Limited, and Baring Asset Management Korea Limited each are affiliated financial service companies (each, individually, an “Affiliate”), together known as “Barings.” Some Affiliates may act as an introducer or distributor of the products and services of some others and may be paid a fee for doing so.
The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, an investment recommendation, or investment research.
In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.
Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this presentation may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.
Any forecasts in this publication are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance is no indication of current or future performance. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment results, portfolio compositions and or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.
The distribution of this document is restricted by law. No action has been or will be taken by Barings to permit the possession or distribution of the document in any jurisdiction, where action for that purpose may be required. Accordingly, the document may not be used in any jurisdiction except under circumstances that will result in compliance with all applicable laws and regulations.
Any service, security, investment or product outlined in this document may not be suitable for a prospective investor or available in their jurisdiction.
Barings is the brand name for the asset management or associated businesses of Barings affiliates worldwide. This communication is issued by one or more of the following entities:
Barings LLC, which is a registered investment adviser with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940, as amended, as well as a Commodity Trading Advisor (CTA) and Commodity Pool Operator (CPO) registered with the Commodity Futures Trading Commission under the Commodity Exchange Act, as amended, Barings Securities LLC, which is a registered limited purpose broker-dealer with the Financial Industry Regulatory Authority, or Barings Real Estate Advisers LLC, which is a registered investment adviser with the SEC specializing in real estate related investments;
Baring North America LLC, which is an Exempt Market Dealer and Investment Fund Manager registered with the Ontario Securities Commission (Baring North America LLC relies on Section 4 (permitted clients) of MI 32-102 (Investment Fund Manager registration exemption) and has filed the Form 32-102F1 and Form 32-102F2 with the AMF in Quebec and is registered under MI 11-102 (Passport System) in the category of Exempt Market Dealer in Quebec);
Barings (UK) Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (Ref No. 194662) and is a Company registered in England and Wales (No. 03005774) whose registered address is 61 Aldwych, London, WC2B 4AE, Baring Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (Ref No. 170601), or Baring International Investment Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (Ref No. 122628), is a registered investment adviser with the SEC and is registered with the Ontario Securities Commission as a Portfolio Manager (Baring International Investment Limited also relies on section 8.26 of NI 31-103 (international adviser exemption) and has filed the Form 31-103F2 in Quebec, Manitoba, British Columbia and Alberta);
Barings Australia Pty Ltd (ACN 140 045 656), which is authorized to offer financial services in Australia under its Australian Financial Services License (No: 342787) issued by the Australian Securities and Investments Commission;
Barings Investment Advisers (Hong Kong) Ltd, which is licensed with the Securities and Futures Commission of Hong Kong to carry on regulated activities Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) in Hong Kong in accordance with the requirements set out in the Securities and Futures Ordinance (Cap 571), or Baring Asset Management (Asia) Limited, which is licensed by the Securities and Futures Commission of Hong Kong to carry on regulated activities Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) in Hong Kong in accordance with the requirements set out in the Securities and Futures Ordinance (Cap 571);
Barings Advisers (Japan) KK, which is registered as a Financial Instruments Business Operator (Registration No. 961-KLFB) for Type II Financial Instruments Business and Investment Advisory and Agency Business with the Financial Services Agency in Japan under the Financial Instruments and Exchange Act (Act No. 25 of 1948), or Baring Asset Management (Japan) Limited, which is registered as a Financial Business Operator (Registration No. 396-KLFB) for Type II Financial Instruments Business, Investment Advisory Business and Investment Management Business with the Financial Services Agency in Japan under the Financial Instrument and Exchange Law (Act No. 25 of 1948);
Baring SICE (Taiwan) Limited, an independently operated business (Business license number: 2008 FSC- SICE- Xin- 030; Address: 21 F, No.333, Sec. 1 Keelung Road, Taipei 11012; Taiwan Contact telephone number: 0800 062 068); or Baring Asset Management Korea Limited, which is authorized by the Korean Financial Services Commission to engage in collective investment business and is registered with the Korean Financial Services Commission to engage in privately placed collective investment business for professional investors, discretionary investment business and advisory business.
Copyright in this document is owned by Barings. Information in this document may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.