Another major event and another major surprise. As of the early hours of Wednesday November 9th, Donald Trump is the US President elect, thanks to the electoral college voting system and despite losing the popular vote to Hilary Clinton.
The result has certainly provoked a response, not only from US citizens but also financial markets. However, after a slump in global indexes when trading opened on November 9th, the markets decided to believe Trump’s relatively calm victory address and ascertained there is probably still money to be made. The major global indexes ended their respective trading days higher with the UK’s FTSE 100 up 1%, the US S&P 500 gaining 1.4% by close of business and the German Dax ended 1.6% higher.
Not all Markets Took the News Well
While the majority of stock markets largely – and somewhat surprisingly – shrugged off the uncertainty a Trump victory has brought, there were also some asset prices that didn’t fare so well.
In currency markets the Mexican Peso lost around 10% against the dollar early on Wednesday November 9 with some analysts saying it could fall by as much as 25% against the US currency.
Bond yields, meanwhile, rose and prices fell, as they became a less attractive option in the face of Trump’s possible policies which are expected to raise inflation – that’s bad for holders of bonds as it erodes their value more quickly.
In addition, if Trump does increase spending on US infrastructure, it will likely involve increased issuance of US Government bonds to fund that spending, which means there will be a larger supply of them – another reason they are perceived as less attractive.
UK Property Could Prove a Surprise Winner
However, one likely winner from Trump’s surprise election is the UK. The pound has already gained ground against the dollar. And in the few days since the result, there has been general agreement that the investment flight to safety is making UK property, particularly London Prime property, a more attractive option for international investors.
“Prime Central London property, a traditional safe haven, is expected to benefit from a flight to quality, asset-backed investments,” said property management firm, London Central Portfolio, in a note the day after the US election.
Attitude to Foreign Investment is Key
But that’s not all. Where Trump has talked a lot about ending free trade and helping the US to make and buy its own products, despite voting for and being keen to see Brexit through, the UK government is clear that trade and foreign inward investment are essential to the UK economy’s well-being and growth. This attitude suggests the UK will be looked upon more favorably by overseas investors considering their next big decisions.
At the moment, the UK economy has defied expectations to grow 0.4% on the first quarter, 0.7% in the second and 0.5% in the third quarter of this year, according to official figures from the Office for National Statistics. Of course, there are fears that higher inflation – a direct result of the vote for Brexit and the weaker pound – is likely to weigh on growth going forward; import costs rise, the cost a consumer pays for goods follows suit leaving Britons with less money to spend and help support the economy. However, if foreign investment decision makers compare the attitudes of the US and UK governments, the UK is currently looking like the stronger candidate to welcome and support that investment.
If the UK can secure enough fresh inward investment, the jobs market should thrive, supporting further business investment, property investment and economic growth.
Of course, it’s currently all ifs and buts due to the high level of uncertainty, which has only been exacerbated by Trump’s election. Right now, though, the still weak pound, the government’s willingness to encourage inward investment and a healthy economic backdrop, put the UK in a strong position to benefit from the election of Donald Trump and the fresh uncertainty that has brought investors.
- Telegraph: US and UK stock markets:
- German Dax:
- Bloomberg: Mexican Peso:
- Market Watch: Bond Yields:
http://www.londoncentralportfolio.com/(received comment via email)
- ONS: UK GDP: