America first
Another major concern for UK and other foreign investors is the future president’s policy on trade. While commentators haven’t been uniformly positive about trade prospects under Clinton or Trump, most have generally accepted that Trump’s brand of isolationism would be more severe and restrictive.
Head of Charlotte Square Investment Managers William Forsythe says there are bearish arguments to be made about either candidate coming out on top. “Everyone focuses on the extreme comments of Trump about Mexican walls and the like,” he said. “He is an American first advocate and would be quite severe on the trade front. But Clinton is not very expansionist either. She is talking about rolling back on the Trans Pacific-Partnership agreement, which is also pretty scary stuff.”
“The last thing you want is to slacken trade with all the global debt we have currently,” Forsythe argued. “We hope and believe equities will continue to progress, but we do have a couple of absolute return holdings, if things turn sour. The bears could make a strong argument for dislocation on the debt side of the equation.”
However, Hermes Investment Management head of emerging markets Gary Greenberg disputes that a Clinton presidency has the same negative implications for trade as a Trump presidency.
Clinton may talk tough on trade policy, said Greenberg, but under her presidency, it would most likely be ‘business as usual on trade.’ As such, trade wars under president Clinton seem improbable to Greenberg.
One of the dismal scenarios Greenberg envisions under President Trump is an aggravated trade war between the US and China, which “would lead to significant losses for both economies” and injure emerging market stocks and currencies.
“Markets outside the US would not celebrate a Trump victory,” he asserted. “Global bond prices would likely tumble due to his willingness to countenance a budget deficit of 10% of GDP, and stocks would follow suit as investors discount the threats of new tariffs, an exit from the WTO and a trade war with China.”
“The deficit and trade war could lead to higher interest rates and a stronger dollar, neither of which are associated with strong emerging market stock markets or currencies. If yields on US treasuries rise, those on emerging market sovereign debt would also climb higher. Trump’s bombastic politics may be ugly, but the economic consequences of him governing the world’s largest economy would be worse,” Greenberg concluded.
Whether Clinton or Trump emerges victorious next Tuesday, Wednesday seems set to be a lively day in financial markets.
