FORMER US president Donald Trump has secured enough electoral votes to make his way back to the White House as the 47th president of the United States.
This comes after a gruelling run-up to the elections that most polls put as a toss-up between him and democratic party candidate and incumbent vice president Kamala Harris.
While political analysts will be spending the next few days, weeks and months analysing the election outcome, markets have already reacted to the news, and investors will be looking at what comes next for the world’s biggest economy.
For South Africans, many will be wondering how it impacts them—and their investments.
According to Old Mutual Wealth Chief Investment Strategist, Izak Odendaal, the latest Trump win stands in stark contrast to the outcome of his last victory.
Unlike in 20216, a Trump win was a considered and planned-for outcome to the race – and also unlike 2016, Trump is now largely a known entity.
That does not mean that everything will be smooth sailing, but it does mean that investors have a clearer picture of what lies ahead.
Odendaal laid out 10 things that any jittery investors should know about the outcome:
1. Market Response:
The initial market response has been for the dollar to rally and US bond yields to rise. Unlike in 2016, this outcome did not come as a surprise and markets were broadly positioned for a Republican win based on Trump’s recent momentum in the opinion polls.
2. Market Certainty
The speed with which the results have come out means there won’t be a long drawn out wait. Markets hate uncertainty.
3. Incoming Policies
Unlike in 2016, a Trump presidency is broadly a known quantity. In terms of economic policy, he stands for tariffs on imports into the US (especially against China), he is anti-immigration, and he is in favour of lower taxes and deregulation.
4. Business Impact
Some of the elements of Trump’s policies will be disruptive for businesses.
Tariffs will complicate the business environment, and without immigrants, many will struggle to find workers. Tax cuts and deregulation, on the other hand, are arguably positive for businesses.
5. Bond Impact
Tax cuts will have to be funded by additional borrowing, and therefore we’ve seen upward pressure on bond yields.
6. Interest Rates
If Trump’s policies are enacted fully, we will probably see the Federal Reserve not cut rates as much, given inflationary risks. However, the Fed is still likely to cut rates later this week by 25 basis points.
7. Exchange Rate
The dollar could be somewhat stronger than in an alternative scenario, which puts some pressure on emerging market currencies and interest rates. While the rand is trading about 1.5% lower, this is not a big move by its historic standards.
8. Russia and Israel Wars
In terms of geopolitics, we can expect Trump to put pressure on Ukraine to start negotiations with Russia, while he will probably support Israel in its war with Hamas and Hezbollah.
He will also take a hard line on Iran. While he is hawkish on China, he is probably less likely to stand up for Taiwan.
9. Impact on South Africa
Given South Africa’s stance on some of these issues, it becomes a more challenging foreign policy environment for us, and requires greater diplomatic skill on our part. However, Trump probably is not terribly interested in Africa or South Africa.
It does mean that South Africa should continue its path of economic reform so that we are more reliant on internal growth drivers, particularly investment, and not on the global environment.
However, we should expect that local markets will always move in line with global trends as has been the case over the decades.
The result does not change the outlook for SA Reserve Bank rate cuts in the short term. A cut at the next Monetary Policy Committee (MPC) meeting is still likely.
10. Investor Strategy
A Trump presidency is not necessarily good or bad for markets, but we should expect more volatility given what we know of his first term. Policies could change at short notice.
We would urge investors to look through the noise and focus on the underlying issues.
Historically, the US stock market has performed well irrespective of which party controlled the White House (the two terms of George W. Bush was an exception, given that it coincided with the dotcom crash at the start and the financial crisis at the end).
Ultimately, investors should focus on being appropriately diversified and sticking to their investment plan.
Though there will be winners and losers across different sectors of the global economy, this election outcome does not call for a major shift in strategy.
Image (US Pres- elect Donald Trump back at the Oval Office).
