So it’s Trump then. Every four years the hopes of the entire world are held in the hands of a few million sticker-wielding swing voters in a handful of regions in the United States of America; we have become resigned to the fact we are in many ways as profoundly impacted by their votes as those we cast in our home countries. As ever, all we can do is work out how their decision will impact on the rest of us.
This time around, global wealth creators and holders weren’t particularly excited about either of the likely winners ahead of the result, so a sense of calm resignation isn’t a surprising response after the announcement, either. Although some predicted economic Armageddon, it hasn’t materialised. Instead we have something strangely close to business as usual. There is the usual uncertainty that comes with change, perhaps exacerbated in this case by Trump’s uniquely vague policy position, but it hasn’t translated into panic.
This gives us the opportunity to calmly assess the potential impact on wealth holders the world over, both for those with US exposure and those without.
The role of the President is widely over-stated in terms of controlling domestic policy. Whilst the 45th President will be in a theoretically strong position to push his agenda given that the Republicans also captured a majority in both Houses of Congress, their hold on the Senate remains relatively slim (and well below the super-majority required to stop Democratic delay tactics) and there are significant internal divisions within the Grand Old Party that may in practice limit Trump’s influence over the legislative branch.
Nevertheless, we should assume based on previous examples that the President’s flagship policies at least will appear in some form, even if substantially altered by the Congressional process of compromise. Trump has been relatively vague on policy specifics, but the headlines are higher infrastructure and defence spending, substantially reduced corporation tax (from 35% to a proposed 15%), and the stated aim to push GDP growth as high as 4%. All of these might suggest that domestic US investments might actually become substantially more attractive in the short to medium term, although the possible inflationary impact should be taken into account when assessing such opportunities. The flip-side of this is that the proposed policies would entail a massive expansion of US national debt, which may not get past the large fiscal conservative block amongst Republican lawmakers. Needless to say, specialists in wall construction can probably bet on a rosy future, though.
Healthcare could also be significantly affected. Trump aside, it is likely that a Republican Congress will look to repeal or replace Obamacare. Big pharmaceutical companies may also be amongst those impacted by a proposed policy to repatriate overseas tax revenues derived from US companies. Although it is too early to tell if it will be net positive or net negative, those with an interest in the US healthcare market should pay very close attention.
As with any change, there has been some short-term volatility. The S&P Futures index took a 5% beating, but recovered relatively quickly. This and the various other falls and recoveries we have seen today seem to have been driven by an immediate change in Trump himself: at his acceptance speech we saw Donald the Statesman, perhaps for the first time, and he was substantially different to the Donald we saw on the campaign trail. He was conciliatory, he was polite, and he was uncontroversial. It remains to be seen whether this sticks – most likely, his volatile nature will re-emerge and may bring with it some correlated market volatility.
As is always the case with such changes, safe-haven assets such as gold and natural resources have been boosted by the news. It is interesting to note that Bitcoin and some other digital currencies rose by a similar proportion as precious metals today, perhaps indicating that such assets are increasingly considered an alternative safe-haven, perhaps due to their non-sovereign status.
One national market to watch closely will be Mexico, as it has been a target of a lot of Trump’s rhetoric to date. In addition to claiming they will pay for his Great Wall, he has also expressed an interest in renegotiating NAFTA to Mexico’s detriment and the Mexican Peso has seen one of the largest and stickiest losses in today’s foreign exchange markets. As with the Sterling depreciation after Brexit, however, this could be a double-edged sword, with the cheaper Peso potentially attracting foreign investment.
Over the long term, if Trump stays true to course we can expect some significant changes in global trade relationships that might impact on the attractiveness of certain economies. Trump has been very positive about the UK’s move away from Europe, which combined with historic business interests there may well herald a strengthening of trade relationships and thereby growth prospects in Britain. Ireland, meanwhile, may lose out due to repatriation policies, given the large number of American software businesses with Irish bases.
Russia may open up as a market for global trade, if early indicators of thawing US-Russian relations remain steady. The public pronouncements by Putin and Trump about one another certainly seem positive for anyone either with wealth in Russia or looking to take advantages of opportunities there. China, meanwhile, potentially stands to suffer in the long term as Trump has threatened to take issue with their currency control; he is expected to act through the World Trade Organisation (WTO) in this regard. Any change on this front is likely to be gradual, however, so Eastern investors can probably rest easy for the near future.
All of this is, of course, only speculative at this point, but it may flag areas for global investors and wealth managers to monitor more closely.
Overall, at this juncture we as a business recommend patience and caution be exercised by global wealth holders and creators. As the President Elect announces his appointments to key positions in the weeks to come we can expect the new administration’s policies, and therefore the opportunities and challenges of the near future, to crystallise. We will be monitoring the situation closely and will occasionally release briefings to clients and key partners as appropriate. If you would like to be included in those communications, please let us know.
For Boston’s part, our geographic diversification as a Group, with an offshore presence in the Isle of Man, an ‘onshore’ EU presence in Malta, and a growing business in Dubai, plus our minimal exposure to US markets mean that we are well placed to provide stability amongst any changes to come.