Dubai: The looming presidential elections in the United States (US) is causing anxiety within the investment community, with many fearing that a victory for Donald Trump could spell trouble for the financial markets.
One of the things people worry about is that the US dollar, to which the UAE dirham is pegged, could be affected if Trump wins the race for the White House. Some quarters, however, are sceptical, citing that the greenback is more likely to strengthen further due to heightened expectations of another interest rate hike by the US Federal Reserve.
Financial experts said the American election results will have significant “personal ramifications” in the UAE. “In the UAE, it is not just about who wins the election but also how that will affect individual investments and future plans,” said Stefan Terry, vice president of Globaleye, an international financial planning company based in Dubai.
Wealth advisors, for one, are already seeing a trend against the greenback, as anxiety over a Trump win mounts.
According to Globaleye, UAE expatriates are starting to move away from investments in US dollars. The trend started last week and is seen to “continue up to the election day on Tuesday, and beyond it, as the full ramifications of the result on the global economy are felt.”
UAE expatriates are reportedly turning to British Pound (GBP) assets, with the UK currency gaining strength against the US dollar on Thursday and Friday. Foreigners working in the UAE have been shifting to cash investments since early this year, fueled by the volatility in China.
“We are seeing that again now as politics always stirs up a lot of emotion. This US election is really affecting investments, probably more than any other election,” said Terry in a statement sent to Gulf News.
The gap between Trump and Hillary Clinton has recently narrowed significantly, causing anxiety to mount. Ole Hansen, head of commodity strategy at Saxo Bank observed that the increased uncertainty “caused tremor across the markets, with the dollar and stocks weakening.”
“Following Brexit, we had a significant weakening of the British Pound which has continued until now. However, in relation to the USD that looks to have stopped for the time being, expatriates feel now is the time to invest in GBP.”
Terry said the markets would likely “go a little crazy” in the short term if Trump wins. “Once this volatility subsides, it wouldn’t be surprising to see stocks actually doing better than they would under a Clinton presidency given how difficult it would be for him to initiate any government action.”
Andrew Prince, financial planner at Acuma DeVere, however, said tha the US dollar is likely to gain more strength given the expectations about another interest rate adjustment by the US Federal Reserve.
"The dollar is likely to strengthen further as markets are very confident that the Fed will raise interest rates in December," Prince said.
He noted that the Sterling has been under significant pressure, following the events in June when the UK voted to leave the European Union.
"If we look at early June, 1 GPB purchased $1.48 and at its low $1.19, a not insignificant fall of some 18 per cent. Local currency exchanges immediately saw a substantial number of people exchanging their dirhams for GBP," said Prince.
"At this stage of the proceedings, Donald Trump was behind in the polls and it's only largely in the past week has his campaign seen a resurgence in his favour." He noted that whoever wins the elections, whether it's Trump or Clinton, it is expected that the markets will experience some volatility.
"In general, markets like stability and despite the rhetoric of the two presidential candidates, it is highly likely that whichever one wins, they will be [turned] into a moderate stance by the Senate and there will be short-term volatility in equity markets.
