Markets shake off Trump triumph, but long-term risks loom

Added 9th November 2016

The surprise US election victory by Donald Trump has greatly increased uncertainty, yet asset prices are now back at similar levels as just a couple of days ago when a Clinton victory looked more likely.

Markets shake off Trump triumph, but long-term risks loom

The parallels of the UK’s Brexit vote with yesterday’s US presidential elections are obvious, but financial markets have responded rather differently this time. Though Asian markets posted stronger losses, the Euro Stoxx 50 and the FTSE 100 have recovered their losses during the day, and European bond yields have hardly responded either. The S&P 500 is also only down by about 1%, while the index posted a 5.3% drop after the Brexit vote. Gold has been the only asset to move significantly, posting a 2.3% gain while the dollar paired back its losses to other major currencies.

It seems investors plan to sit out the uncertainty created by Trump’s victory, apparently in the hope that some of his more outlandish plans such as repealing trade agreements and deporting immigrants will prove to be mere campaign talk. But policy uncertainty is undoubtedly higher now. Wouldn’t a higher risk premium on risk assets therefore be warranted?

Buy gold

It would, says Tim Peeters, head of securities portfolios at Portolani, a multi-family office in Belgium. “I just bought gold a minute ago,” he told Expert Investor this morning. “Today I can reposition my portfolios with prices at similar levels as at the end of last week,” says Peeters, who is still in the dark why markets haven’t reacted more strongly to Trumps’ victory. “Uncertainty will remain on a higher level than markets anticipated before the election over the coming months. My current overweight to the dollar has become riskier now, so that’s why it makes sense to replace some of these dollars with gold,” he adds.

 ource investingcom Source: investing.com

Bonds are a traditional risk-off asset, but US bond yields have risen in the wake of the election result rather than fallen, as they did after the Brexit vote. A direct reason behind is probably the unclarity how the president-elect will fund the big tax cuts he has promised, with investors fearing US national debt could accelerate.

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Tjibbe Hoekstra

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Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.

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