Weighing up the results of US election
IT is generally agreed by equity investors that a Donald Trump US presidency would not be the preferred outcome, mainly because he would, at least as his plans are currently understood, promote more isolationist policies.
His two big ideas are to build a wall to keep out Mexicans and to impose high import tariffs on goods from China.
From a pure global economic standpoint, these are backward steps, reducing trade and potentially increasing inflationary pressures as labour and goods shortages develop.
The Chinese would be well within their rights to retaliate by allowing a faster devaluation of the yuan. Trade and currency wars are not to be welcomed in a world where the economic equilibrium is already fragile.
It’s not surprising then that we have been consistently scaling back our exposure to equities this year, with political risk being the key reason. Holding a bit of extra tactical cash feels comfortable despite the lack of income, especially as markets are unlikely to rip higher if Hillary Clinton wins – even she has been forced to withdraw her support for new trade deals, and pressure from Bernie Sanders has required her to be less friendly towards the financial industry.
One thing on which both are agreed is the need to increase infrastructure spending.
No sooner did Mrs Clinton announce a $275 billion package than Trump doubled it. But his fiscal plans, which also include tax cuts, would result in huge deficits that look unsustainable.
A Trump victory is expected to mean a stronger dollar, if only because it would be seen as a safe haven. But then there is Trump’s cavalier attitude to debt. Whoever wins from two unpopular candidates, it would appear that the majority of voters still won’t be happy.
Clinton is the devil we know; The Donald is still something of a mystery, but a dangerous one.
Given Mr Trump’s itchy finger on the nuclear launch button and you can see why caution is in order. John Wyn-Evans is head of investment strategy at Investec Wealth & Investment