Over the past few months, the build up to the US election appears to have commanded the undivided attention of news agencies and global investors alike. However little mention has been made regarding the likely consequences for South African investors.
The below commentary aspires to provide you with a high level summary of how today’s US election could potentially impact South African investors.
Whilst the 2016 US election campaign has been unique in many ways, the truth is that the underlying dynamics could well have been anticipated. With the current trend of widening income inequality across the globe, there is a growing global perception that the benefits of cross-country trade and globalisation have been limited to a select few. According to the Washington Centre for Equitable Growth, approximately 52% of all US income growth following the 2008 Global Financial Crisis has accrued to the wealthiest 1% in America.
Those that have followed the developing US election campaigns in the news over the past few months will likely attest to the growing divisions between the Republican and Democratic Parties, to the extent that the possibility of neither party having a significant majority in the House of Representatives today seems probable.
Whilst polls and predictions in mid-October suggested Clinton was likely to win by a margin, today these same polls reflect an uncomfortably close race to the finish.
In many ways this is indeed an unusual election, as both of the above mentioned candidates are unpopular, with Republican nominee Donald Trump expressing a populist agenda that appears to conflict with decades of Republican Party tradition. In his campaign, Trump has promised to implement tax cuts, deport millions of illegal immigrants and to cancel numerous trade agreements.
Clinton, by contrast, appears committed to building on the two term legacy of President Barack Obama. She has expressed support for increasing the minimum wage, making tertiary education free for less affluent students and plans to pay for this by increasing the taxes of America’s wealthiest citizens.
Markets dislike uncertainty, no surprise then that according to a recent study by BlackRock, nearly 70% of US respondents have stated that in the current political environment they are less comfortable to invest in financial markets.
No matter who wins today’s US election, America’s growth will likely be impacted by the desire to renegotiate various trade agreements and the weaker appetite for globalisation that has been expressed by both candidates.
The benefits of free trade are one of the few things economists typically agree on. Thus, many investors are rightfully concerned with the increased anti-trade rhetoric that has the potential to trigger renewed negative sentiment across Emerging Markets, including the South African rand and domestic assets. Rising isolationist sentiment is a primary risk across the globe, particularly in the case of a Trump victory. Branding China as a ‘currency manipulator’ and having threatened to introduce retaliatory tariffs, Trump risks igniting trade wars with other nations. Any such moves would likely result in investors adopting a ‘risk-off’ sentiment, thus initiating a flight to safe haven assets such as US Treasuries, Gold and ironically the US dollar.
In summary: rather focus on the outcome and stay invested
At Momentum we believe in the benefits of adopting an Outcome-based investment philosophy. Outcome-based investing encourages investors to focus on their own unique investment objective, whilst simultaneously managing risk to ensure the maximum probability of achieving the desired investment objective. At the end of the day, we believe in solutions that provide investors with the opportunity to remain invested, regardless of the ever-changing investment landscape.
For more information on how Outcome-based investing may be of benefit to your clients, please contact a Momentum Investment Specialist or your dedicated Momentum Marketing Adviser.