_ BNZ’s Manager of Wealth and Private Bank Research, Louis Nel shares his views. _
There are many global concerns we can identify that are contributing to the current volatility in financial markets; fears around the health of the Chinese economy, uncertainty around the US Federal Reserve tightening, and oil prices falling further. But there’s a new factor that has come into play which we expect markets may react to.
The US Presidential race is likely to hog headlines and opinion polls right up until Election Day on 8 November 2016. The rise of Donald Trump is becoming more difficult for investors to laugh off. Will the man who wants to add about a trillion dollars a year to the federal budget “make America great again”?
At a recent Republican debate Mr Trump was asked how he would balance the books, given the massive tax cuts he has put forward. “We will do my tax plan, and it will be great,” he said. “We will have a dynamic economy again.”
This is a typical ‘sales man’ response from the property tycoon – but it’s this lack of detail about his policies and how he would implement them which may cause investors some concern.
In a nutshell, Trump’s policies rest on reforms. Immigration reform, tax cuts and trade reform. The main takeaway; the costs will be huge.
JBWere Strategist, Bernard Doyle, says a President Trump would not be welcomed by financial markets, but at the same time we would be mindful of overplaying his potential influence.
“As the last term of President Obama has shown, the Oval Office can be made far less effective by a hostile Congress. Mr Trump would likely face as many hurdles as second term Obama has in turning ideas into action.”
But let’s not get too far ahead of ourselves. After ‘Super Tuesday’ Trump is the clear favourite in the Republican race thus far, however he is still regarded as a longshot for President. Hillary Clinton is seen as a more likely option for President.
Clinton plans to increase infrastructure investment, help small business growth, and put more money into the pockets of middle-class Americans to drive growth.
The former First Lady, Senator, and Secretary of State (a well-seasoned player in Washington) has a lot of experience on her side. To some investors this suggests that she stands a better chance of delivering on her economic policies, making her a more ‘market friendly’ President than some of her rivals.
That said, the confirmed nominee for either party is yet to be set in stone. As such, the impact on markets to date has been minimal, but it’s early days and investors are keeping a watchful eye on events. Should Trump get the Republican nomination, market participants will become a lot more ‘interested’. Under that scenario, we may see the US Presidential race affect market volatility.
As we’ve stated in a recent blog, there has been increased volatility and uncertainty in many markets globally, and the US Presidential race may add to this in the months ahead. But as a long-term investor in a well-diversified portfolio you should take comfort from the fact you are well positioned to ride out any periods of volatility. And of course, our investment managers will be looking to take advantage of any resulting investment opportunities, as they arise.
This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances from a financial adviser before making any financial decision. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in this article.