Volatility after Trump’s win creates buying opportunities
OPINION
David Hughes
Donald trump becoming the 45th president of the United States has sent shockwaves across global financial markets, which had largely priced in a win for Hillary Clinton. The fall in UK indices followed falls in Asian and European markets after the multi-billionaire real-estate-mogul-turned-reality-TV-star was declared the winner of the race to the White House.
The UK’s FTSE 100 index was down 82 points to 6,761.10 in the opening minutes of trading. Other major European and Asian stock markets were also lower, with investors piling into safe haven stocks, gold and currencies, including the yen.
This should be expected. Markets nearly always over-react in the immediate aftermath of major geopolitical events. It is their default response.
Despite his conciliatory tone in his victory speech on Wednesday morning, Trump, the President, remains a huge unknown — and it is this uncertainty that he brings that is causing the volatility in markets.
However, this does not necessarily need to be a bad thing — in fact, quite the opposite as history has taught us on many occasions. Volatility always creates major buying opportunities because high-quality investments can become significantly cheaper, meaning investors can top up their portfolios and benefit from greater potential returns.
Identifying opportunities
This is where the real value of a professional fund manager comes up. They will help investors identify the advantages of the opportunities that are presented through the volatility, and help them to circumnavigate any potential risks.
Those who are serious about generating, building and safeguarding their wealth should be reviewing their financial planning with an expert adviser to work out how best to capitalise on these historic events taking place in the US.
As always, the recommended method to take advantage of opportunities and mitigate risks is to ensure portfolio diversification. In broader terms, what does a Trump presidency look like for our region?
Trump’s much-lauded protectionist policies could threaten globalisation, and with that global economic growth and energy demand. This would mean reduced global demand growth for oil and gas have to be factored into the price of petroleum products. With the Gulf deriving the bulk of its income from this source, it may mean less revenue coming into government coffers and the broader economy than had been anticipated.
With many Gulf currencies tied to the US dollar, a weaker dollar will lead to higher import prices from Europe and Japan. This would be coming through in higher local consumer price inflation and more expensive capital goods. However, tourism and other export sectors should benefit from weaker Gulf currencies.
Benefits for UAE
Another factor is Trump may value the US alliances in the region less, leaving a vacuum that Iran and Saudi Arabia will compete to fill. The US overtook Saudi Arabia as the world’s largest producer of petrochemicals in 2014 and could easily become energy self-sufficient. Countries of relative stability in the region, such as the UAE, may benefit from second ‘bolt home’ buyers from the region if regional tensions deteriorate further.
Of course, only time will tell how the president-elect will deliver on his controversial campaign rhetoric and policies. Was it all just bluster to win the populist vote? We’re about to find out.