There was a negative reaction to Trump’s victory and an immediate spike in volatility. Why did the financial markets react negatively to a Trump win?
Here’s what the financial media has been saying.
Trump would raise barriers to international trade in an effort to protect U.S. industry. If he works to restrict trade, especially with China where the U.S. runs a huge trade deficit, there is a genuine threat that the global economy will stall, perhaps falling back into recession. The decades of productivity and income benefits from strong global trade risk coming to an end. Periods of weak global trade are inevitably associated with sluggish growth, stalled productivity and falling living standards.
To think that other countries will not retaliate against the U.S. with their own trade restrictions is to ignore history. There seems little doubt that U.S. multinationals and exporters have as much, if not more, to lose more than the protected industries in the U.S. will gain. The world economy will be weaker as a result of Trump’s policy agenda.
If the Chinese economy, which is the trading powerhouse of the world, suffers from a slump in global trade, the fallout will be far and wide. Commodity markets will falter, the services sector will weaken and countries that have significant economic links to China will obviously be under pressure. There will be a shock that will be felt around the world.
- The Guardian
Emerging markets are in for a rough ride.
Mexico, Turkey, Brazil and a host of other countries around the world are vulnerable to a mass migration of capital from their economies and a downturn in global trade if Trump secures the White House.
Trump’s platform has been built on economic and political isolationism. He has threatened to tear up trade agreements with Mexico and Canada, rejected the pan-Pacific trade deal representing a huge swath of the global economy, and promised to immediately levy a barrage of tariffs and other sanctions against China for its trade policies.
- Wall Street Journal
Trump has made some radical statements about international trade. He has threatened to pull out of the North American Free Trade Agreement, put tariffs on imports from Mexico and other emerging markets and row back on globalisation.
- The Telegraph
What you need to keep in mind
Glenn Freeman, a Morningstar senior editor, shares some insights, which have been summarized below.
The most successful investment strategies are those played out over the long term--it's a common sentiment, but one that can be difficult to put into practice during periods of market volatility and events that provoke great uncertainty.
Have a plan and stick to it. The best defence against market volatility is a clearly defined, well-rounded and long-term investment strategy. This will keep you disciplined and focused on the long term.
Whatever happens, equity markets will recover (remember Brexit in June?). Don’t make any hasty decisions.
Dan Kemp, Chief Investment Officer - EMEA, Morningstar Investment Management Europe, says that the first temptation of investors is to always do something. But there is no need to react. He does suggest that investors can look for genuine value opportunities over the next few days or weeks, and use this opportunity to add to long-term positions.
