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Trump wins – what it means for the markets

The result of the US presidential election could mean uncertainty and jitters in the short term, but opportunities in the slightly longer term.

Donald Trump will be the next president of the USA following a closely fought election. His victory was an enormous surprise for the financial markets, notes senior investment strategist Lars Skovgaard Andersen from Danske Bank, who advises Danske Invest. Below he explains the likely consequences of the election outcome for investors.

“The overall consensus among investors was for a Clinton win, so there will be a price to pay in the markets,” he says.

What will be the immediate consequences of a Trump victory?
“Investors will move to reduce risk, which will have a negative effect on the financial markets generally. Both equities and yields are set to fall and the dollar (USD) will weaken. The many unknown aspects of Trump’s policies are very much what is worrying investors. There is great uncertainty about what he will implement, how he will implement it, and what the long-term effects will be,” says Lars Skovgaard Andersen.

“Emerging market equities and emerging market currencies in general are very likely to suffer the largest negative impact. We expect there to be particular pressure on the Mexican peso, which is already taking a significant hit. This is because Trump’s policies could affect a number of international trade agreements, and trade with Mexico has very much been in focus during Trump’s election campaign. US equities look set to open 4-5% down and European equities are also reacting negatively. Our estimate is that European and emerging market equities will generally be harder hit in the short term than US equities,” says Lars Skovgaard Andersen.

What about the slightly longer term reaction?
“As we are still unsure which policies will be adopted, the longer term impact on the global economy is also extremely uncertain – and the state of the economy is still what has the largest influence on developments in the financial markets. That being said, Trump may bring a general uncertainty – especially in connection with global trade – that could mean jittery markets for an extended period of time,” he says.

Which sectors might be particularly affected in the slightly longer term?
“The general consensus among investors is that a Trump win will be negative for alternative energy – with the possible exception of the bio-fuel ethanol.”

“In contrast, financials, energy, basic resources, materials and industrials could experience a positive effect in the longer term, especially in the US. Trump has signalled pronounced fiscal easing via tax cuts and government investment – including major infrastructure investments that could boost prices and demand for materials and a number of commodities. Manufacturing could also be positively affected,” says Lars Skovgaard Andersen.

“Significant fiscal easing could also lead to rising wages and upward pressure on inflation in the US. This could eventually result in higher interest rates, which could have a positive impact on the financial sector. Another potentially positive aspect of the Trump win for financials could also be that worries about increased regulation of the sector under a Clinton presidency have now eased. Traditional energy may be another winner.”

“Once the smoke has cleared, it could be interesting to focus on US companies, as this is where the stimuli will eventually be concentrated. US companies will reap the benefits of Trump’s policies, while the rest of the world will experience the downside,” says Lars Skovgaard Andersen.

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