Early Review of Financial Impact of the US Elections
Donald Trump has won the US Presidential Election, beating Hilary Clinton, and already we are seeing some initial reactions in the financial world with slight falls in markets around the globe but not the turmoil many investors had predicted.
The markets were caught off guard on Wednesday morning as key states voted in favour of the republican candidate; global financial markets have fallen in value with the US dollar and US equity futures dropping.
2016 has seen its fair share of political surprises, however this one may be the biggest to date – having emerged as (the somewhat unexpected) winner, Donald Trump will take office as President in January 2017 with US Congress (both the Senate and the House of Representatives) fully under republican control.
The result has already called into question the ability of forecasters to accurately predict outcomes and capture the extent of public discord and frustration with Western democracies. The outcome can be seen as a vote against the political establishment from a large section of society that is angry that policy has done little to aid economic recovery following the global financial crisis. It is likely that there will be policy changes now and, although it is difficult to have immediate clarity on what these will be, we should expect a more inclusive domestic growth agenda will emerge.
In the current economic climate, both new and experienced clients are somewhat uneasy about investing.
However, there is still abundant opportunity for investors to build wealth if they live by two key rules:
1 - continue to drip-feed new money into the markets
2 - properly diversify their portfolios
Factors such as unusual central bank policies in developed countries, economic slowdown in China and international security threats are all potential cause for concern; but even amongst the ongoing apprehensions raised by Brexit, instability unstable oil prices and unknown future of upcoming U.S. presidential elections, interest rates are still expected to soon rise.
For investors used to more consistent and greater returns, some have found these hard to come by of late and are claiming that global growth “isn’t what it used to be”, all this combined with mixed geopolitical factors that could impact the market are now being viewed as a definitive indicator.
However, this period of relatively low market volatility, fueled by contradicting statements from analysts, economists, politicians and media commentators is not necessarily the ‘calm before the storm’.
It is imperative that we not overlook the fundamentals.
In order to accumulate wealth investors must adopt an attitude which includes these two important elements:
The result of today’s decision was not as many had expected, but despite the UK vote to leave, it will continue to be part of the EU for up to another two years and business at many investment institutions will be broadly unaffected except for some minor operational alterations.
The good news is that the market has not panicked.
Over the very short term we might anticipate some minor impact on trading as some fund management groups may restrict redemption volumes to enable them to manage their liquidity risks.
Over the longer term the UK will renegotiate trading agreements with European partnerships and fund houses will seek authorisation from EU jurisdictions if required to ensure that their services are unaffected.
I will continue to trade and advise in accordance with your wishes and do my utmost to minimise the potential negative impact on your portfolio, yourselves and your families.
In the wake of the referendum results, the factors influencing the votes and predictions for the implications of the votes is being considered across the board.
Everything from too many “remain” voters stuck in the mud at Glastonbury or on holiday after university exams to rain in the South East of England keeping young voters indoors. Even the potential of voter fatigue in Scotland.
Regardless, what we do know, is that it was probably a combination of factors and quite possibly we now have a more representative sample of the UK population and a relatively strong majority voting to leave the EU – 52% vs 48%.
As you are well aware, the UK has voted to leave the European Union and the British Prime Minister, David Cameron has resigned; up until the evening of the 23rd June bookmakers odds suggested there was only a 16% chance of this happening.
However, despite the financial markets and global institutions having to make revisions to their predictions, the majority will still try to position themselves to continue to profit from this outcome as in many market conditions.
That being said, a number of funds will face uncertainty as volatility spikes. Although this will even out and come to pass in time, this is by no means of short-term impact.
The next step involves the invocation of article 50 of the Lisbon Treaty which opens up a two-year negotiation, after which the treaties which govern the UK’s membership of the EU no longer exist. Interestingly, and adding further uncertainty, the terms of any negotiated exit agreement are subject to ratification by each member country’s parliament.