Silver lining in Trump win
Incoming US leader’s plans could be what world needs
DONALD Trump’s dramatic victory in the US presidential elections has been chaotic for emerging-market currencies including the rand, which slipped 7% against the dollar this week, and some commodities that saw a sharp uptick had lost some gains by the end of the week.
The selloff of emerging-market currencies deepened this week as concern over policies that Trump is set to implement when he takes office next year could lead to capital outflows from developing nations and weaken their exports.
The rand weakened to R14.40 to the dollar in afternoon trade on Friday. The Mexican peso led declines of emerging-market currencies, falling by more than 30% as Trump’s campaign talk of renegotiating trade deals that are benefiting countries such as Mexico sparked panic in global financial markets.
Trump’s shock election also set off a buying frenzy in commodity stocks on Wednesday, a day after Americans voted, with base metals and gold shares among the biggest winners.
The frenzy could in part be due to Trump’s ambitious $500-billion (about R7.1-trillion) infrastructure investment plan which is set to boost low US and global growth and improve demand that will benefit commodity-producing countries such as South Africa.
Lesiba Mothata, chief economist at Investment Solutions, said the Trump administration could be what the world needed to reignite growth.
“If it is true that Trump will do this infrastructure spending, that could be a positive outcome, so positive in the sense that countries that are exporting and producing commodities like South Africa will benefit.”
While emerging-market currencies lost ground, bond yields improved and the demand for emerging-market assets would not subside, Mothata said.
“We are seeing strong flows into emerging-market debt and equities,” he said. “There are positive outcomes happening in South Africa without Trump. If he continues with fiscal policy it will help us even further because fiscal expansion will be good for commodity-based countries.”
Ricardo da Camara, financial market analyst at ETM Analytics, said that although the rand had slipped against the dollar, the positive outlook over the next three to six months for the rand POWER PLAY: Donald Trump’s surprise election win could have a marked and positive effect on South Africa’s fortunes “is mainly because of local economic fundamentals turning more in favour of rand strength”.
Gold, a safe-haven commodity in times of perceived heightened risk, increased 4.8% on Tuesday evening, and the platinum price rose 2% after Trump’s speech on Wednesday.
However, the gold price, which peaked at $1 337 an ounce on Wednesday, had fallen back to $1 234 an ounce by Friday.
Platinum peaked at $1 002.95 an ounce on Wednesday but was at $947 an ounce on Friday.
Peter Major, a mining analyst, at Cadiz Corporate Solutions, said commodities were already running ahead before the election results were announced.
Trump had been elected “into a market that’s at an all-time high and he is coming into all-time low interest rates, he is coming in with employment at 4.9%. It’s never been lower. I find it hard to believe that he can improve more than that.”
Major said the gold market retreated on Thursday because gains the day before were “a momentary reaction”.
Nevertheless, gold miners are enjoying the ride. Sibanye spokesman James Wellsted said: “This is obviously positive for the industry and the industry maintains very healthy operating margins.”
He added that Sibanye was positive about the future of the gold price as the US election and Brexit had resulted in additional global economic and political uncertainty.
Major said: “All the miners, especially the diversified ones, were up 4% to 6%. I think what that tells you is that the world is pretty positive that economic growth is going to be good next year.”
He said Trump’s speech created optimism because “he is not afraid to make things happen; he is not afraid to shake up the status quo”.
During his election campaign Trump promised to spend more than $500-billion on infrastructure projects.
This pledge saw base metal prices climbing about 8% in the past two days.
Makwe Masilela, a portfolio manager at BP Bernstein, said depending on how Trump handled his position, foreign and trade polices would not change overnight, “but the good thing . . . is that the Republicans rule both houses so to pass legislation, it’s going to be much easier”.
He added that for the gold price to strengthen further, the world was now watching two things: Trump’s commitments and policy changes in the US; and how the UK will renegotiate its trade deals since it voted to leave the EU in June.
He said a short-term factor that could move the gold price is whether the US Fed increases interest rates in December.
If it is true that Trump will do infrastructure spending, that could be a positive He is not afraid to make things happen; he is not afraid to shake up the status quo