What Trump’s election win means for your investments
US dollar, stocks set for gains, while bond, gold investments disappoint
Dubai: With Donald Trump projected to win the US elections in 2024, the world’s largest economy’s dollar and stock markets are set for clear-cut gains in the coming weeks, while investments in bonds and gold will disappoint. So what should you do to ensure lesser losses and more profits for you?
“US elections can generally have wide-ranging effects on your investments worldwide due to the policies and priorities of the newly elected officials, whoever he or she may be,” said Brody Dunn, an investment manager at a UAE-based asset advisory firm.
“While short-term market reactions are driven by uncertainty, the longer-term impact is shaped by the legislations and economic direction set. Investors closely monitor election outcomes to adjust their portfolios in response to potential changes in taxes, regulations, spending, and foreign policy.”
Now, with a decision on who the new US President will be, here's how different investments are expected to react in the weeks and months to come. Knowing this will help you decide what tweaks to make to your investment portfolios, both with a near- and long-term times horizons:
• Currencies
Amit Trivedi, UAE-based forex analyst and trader, agrees with analysts’ expectations that a Trump presidency is widely expected to strengthen the US dollar, with investors expecting his policies to lead to higher US economic growth and inflation than where it is at currently.
“Global investment brokerages are also unanimously now expecting the US Federal Reserve would need to keep rates high to prevent the US economy from overheating, which in turn would be bullish for the US dollar, which would likely have a mirror effect on economies and currencies elsewhere,” said Trivedi.
Citi analysts expect the dollar to rally 3 per cent after a Trump win, but expect a sharp fall in the euro, possibly below the key $1 (Dh3.67) level. They also expect China's yuan to slide further, as in 2018-2020 when it depreciated swiftly.
“With a Trump administration expected to take a softer line on cryptocurrency regulation, Bitcoin is another potential winner, which was indicative of the world's largest cryptocurrency rising to an all-time high on Wednesday.”
• Stocks
Mohammed Shaan, a UAE-based investment advisor, opined that Trump's promise of lower taxes for big corporations, more oil production point to stronger growth and inflation, viewed as positive for stocks globally. “Sectors such as banks, technology, defense and fossil fuels are likely to benefit,” he said.
Goldman Sachs estimates that Trump's plan to cut the corporate tax rate to 15 per cent from 21 per cent would raise top 500 multinational conglomerates earnings by about 4 per cent, which Shaan expects to be a significant boost for stocks worldwide.
“Outside the US, a strong dollar, high interest rates will mean defensive sectors will do better and multinational companies with exposure to US markets may take a hit. Sectors exposed to tariff changes, such as semiconductors, autos and clean energy, will likely be volatile,” Dunn added.
Also, with new US policies expected to put pressure on economies elsewhere, i.e. Europe and Asia, top investment bank Barclays warned of possible "high single-digit" percentage drops in the region's earnings, with primarily the defence sector being likely to be impacted, it added.
“But with new US policies expected to put pressure on economies elsewhere, i.e. Europe and Asia, as more pressures on the euro, yen, Swiss franc and other currencies, will reduce the room central banks there have to cut rates as needed. Most analysts expect bond and gold yields to rise.”
Key takeaways: What steps should you take with the above trends?
Here are some immediate steps Dunn and Shaan suggest taking when factoring in the above trends relating to the latest US election outcome.
• US elections often bring a degree of uncertainty to markets, especially if the near-term implications are unclear or contentious. Market participants may become more risk-averse, leading to short-term volatility. So brace for – albeit brief – flux.
• If you are attempting to ‘time’ your investments based on election outcomes or shifting your portfolios as results or updates unfold, bear in mind that while this can lead to short-term gains, market timing is difficult and risky.
• Over the longer term, as the broader direction of US economic policy and regulations can impact sectors or industries, align your long-term portfolios goals with the predicted priorities of the incoming US administration, buying into sectors that are likely to benefit.
• As always, the bottom line is that investors everywhere should stay informed of any updates coming in soon, while also considering the potential risks and rewards before making investment decisions in the lead-up to and following market-moving event like the US elections.