Our views

Trump victory an eerie re-run of Brexit

Trevor Greetham, Head of Multi Asset

 9 November 2016

People who lived through the UK Brexit referendum were treated to an eerie re-run last night, as America elected Donald Trump president against the expectations of pollsters, bookmakers and investors. Also like Brexit has been the initial market reaction, with stock prices falling fast and then bouncing back (see chart). However, his election does not change America’s institutional framework in the way that the Brexit vote did in the UK and it should not impact the US economy negatively.

Markets don’t like uncertainty and Donald Trump is an unknown quantity as far as US economic policy is concerned. While there are some market-unfriendly policy ideas, his protectionist anti-trade policies for example, Trump is also in favour of increased fiscal spending which would be positive for growth and the US political system includes many checks and balances. Even a Republican-dominated Congress is unlikely to wave through every idea coming from the White House. 

In short, the choice of US President is unlikely to impact global markets or the world economy for long. With global growth picking up and policy loose, stocks should continue to beat bonds. There remain many important unknowns as to how a Trump presidency will operate and market volatility may be elevated for a while but we like to buy stocks on signs of panic. We lightened up equity exposure a week ago when the markets were pricing in a Clinton victory and we are starting to redeploy those assets at lower prices. If Brexit provides a roadmap for investors, stock markets will be making new highs again by year end.

Source: Bloomberg

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.