On January 20th 2017, Donald J. Trump will be the new President of the United States of America. After years of intense campaigning and an election result met with both jubilation and disappointment at home, global financial markets quickly went into a frenzy of volatility and uncertainty. This is to be expected while the world determines whether the US President-elect’s policies match his often-divisive campaign rhetoric.
An extraordinary time for global financial markets, Trump’s victory saw investors flee to and return from safe haven assets as they considered the implications of such a historic event. Overnight traders from New York to Hong Kong were caught off guard by a result that defied all odds and polls. Over a 12-hour period markets for all mainstream asset classes ranging from stocks, bonds, commodities and currencies plunged before jumping back toward all-time highs. The CBOE Volatility Index, considered the best gauge in financial market stress, was down 22% by the end of the frantic trading day.
Futures for the S&P 500 dropped by 5% but immediately recouped nearly all losses. Japan’s Nikkei dropped 5.4% before gaining 6.7% the very next day. The Dow Jones, Stoxx Euorpe 600 and FTSE all dipped and ended up 1.4%, 1.5% and 0.77% respectively. A sell off in the US Treasury’s benchmark 10-year bonds pushed yields past 2%. Oil prices rallied, providing further support to global equity markets. Gold saw brief gains before returning flat levels. The US$ has also reversed early losses against the Japanese Yen, Swiss Franc, Euro and British Pound.
The Volatile Day After
Although frantic, we should still pay attention to the movements in the markets as they reflect investor confidence and indicate how change can affect asset prices in the short to long term. President-elect Trump’s plans to reverse foreign trade agreements such as the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership, lift restricting on tapping energy reserves, approve the Keystone XL pipeline and cancel billion in payments to climate change programs is already causing profound shifts in financial markets.
At the same time, we should remember never to be drawn into hysteria. This idea of uncertainty and fear is reenforced everywhere we look, constructed by the mainstream media who want to capitlize on our subconscious defense mechanisms (that stem from the Amygdala portion of the human brain – the flight or fight stimulus) for commerical reasons. Trump’s fierce and often controversial rhetoric over the past two years should perhaps be considered in a similar vein – nothing more than an effective strategy to receive free media attention. We suspect his policies will be far more centered and balanced than his detractors will have you believe. After all, one of Trump’s first moves in Office will be to review the Quantative Easing programmes relied upon by previous governments and prioritize fiscal stimulus (something that the Obama administration wanted to action during their last term).
Everything You Need to Know About Trumponomics
Certainly one of the losers in the post-election landscape, Hillary Clinton aside, is the Mexican Peso. The currency plummeted by as much as 13% before settling 8.7% down at 19.91 per US$ the day after the election. The sentiment towards Brazil on the other hand is cautiously optimistic. While we expect short-term volatility here, the country continues on its path of recovery with the new center-right Temer government. Fundamental assets such as agriculture remain strong and undervalued. The fourth largest agricultural power in the world, agribusiness represented 5.6% of Brazil’s $2.2 trillion GDP and reached a total $476 billion last year (having doubled over the last decade alone).
The intimate connection between geopolitical events and traditional financial markets make it difficult to assess the true impact of the surprising Trump victory. We live in increasingly uncertain and volatile times and as investors we must opt for strategies that support innovation, adaptation and resilience in all aspects of life to achieve true value creation. Time will tell how the US Presidential Elections will impact global financial markets, as it will for Brexit, China’s continued hard landing, Russia’s international trade sanctions and Brazil’s transition to economic recovery and the political center-right. This uncertainty has been driven by a demand for change by populations around the world to positively reform governance and corporate systems for the better.
By turning towards assets such as sustainable agriculture that focus on fulfilling mankind’s most essential needs, you minimize exposure to market fluctuations while driving a new age for social responsibility and prosperity.
With any new chapter comes an opportunity to create abundance and prosperity for the planet. All we need to do is continue investing in the right solutions.