A Trump Victory Could Trigger Knee-Jerk Selloff In Emerging Markets
How will emerging markets react if Donald Trump becomes the next U.S. president?
Hillary Clinton has a slight edge over her opponent Donald Trump as the U.S. goes to vote on Tuesday, but what if the Republican Presidential candidate does emerge victorious? And what will be its ramifications on emerging markets like India? Most fund managers and investors believe that such an event will only add to the volatility and decline in major equity indices.
An Adverse Reaction On Global Equities
The impact of Donald Trump’s victory, as many believe, will not be unlike Britain’s referendum to withdraw from the European Union. Not only do market experts expect an adverse knee jerk reaction in global equity markets, especially since a Hillary Clinton win is being factored in, the global economy’s long term outlook will have less visibility since little is known about Trump’s economic policies.
If Trump pulls a Brexit type of victory—I still think it’s very unlikely—I think the markets will be woefully under-prepared for it. I would expect the Dow Jones index to be down 5 percent. Mexican market will be down 10 percent. Emerging markets will also be down because the markets are pricing a Hillary Clinton victory. Once the knee-jerk reaction is done, we will have to re-evaluate, which stocks to buy.Ramesh Damani, Veteran Investor and Member of the BSE
A Trump presidency initially would probably be somewhat disconcerting. I tell people Trump is like Brexit for the U.S., not because policy implications are that bad, if he brings fiscal policy into play that may actually help. But the uncertainty itself may end up being quite a drawdown at the beginning.Krishna Memani, Chief Investment Officer, Oppenheimer Funds
Wall Street is betting on a Hillary victory at the moment. So I do think it would be a concern. They see Trump as being all talk. Trump talks about building a wall separating Mexico, tearing up trade deals that have taken decades to put together, as opposed to negotiating properly. All this is likely to spook the markets. A Trump victory will be quite a disaster for the stock markets.Richard Harris, Chief Executive, Port Shelter Investment Management
Indian Exports May Come Under Fire
Indian equity markets along with other emerging markets are likely to bear the brunt if Donald Trump does become the next U.S. President. It may be particularly difficult for export oriented sectors like information technology and pharmaceuticals, who have substantial exposure to the U.S. However, a Trump presidency is not likely to be dramatically different for the rest.
In terms of impact on India, Trump has said a few things, which his supporters want him to do after the victory. First, he wouldn’t allow open immigration. A lot of Indian tech support that goes there will be hampered by new immigration laws. He will breakdown a lot of treaties like NAFTA, NATO and TPP, which promote free trade. Last few years a lot of emerging markets have grown by exporting to America. That’ll be more constrained in a Donald Trump world. At least from get-go, it will be broadly negative for the equity markets.Ramesh Damani, Veteran Investor and Member of the BSE
If Trump were to win, there will be quite some volatility. Negative, because no one has been able to understand what he actually stands for. That is the basic problem. A Trump presidency will not be dramatically different. It might change in terms of policies towards the Middle East or policies towards terrorism but as far as the economy is concerned, I do not think it will be dramatically different. The big banks will still be there and they will still do business.UR Bhat, Managing Director, Dalton Capital Advisors
A Contrarian View: Marc Faber For Trump
Not all investors and fund managers believe Donald Trump would have as much of an adverse impact on the world economy. But only in relative terms. Economist and advisor Dr Marc Faber who is known for his contrarian views believes that Hillary Clinton’s track record as the Secretary of State implies more tensions in the Middle East which may not augur well for global financial markets and prefers Donald Trump owing to lack of options.
I think it would be good for the world if we have a U.S. President who is not a neocon and is not guided by people like the Bush family, but someone who is prepared to see the world the way it is. The world is not as it was a 100 years ago where western powers were able to colonise the world and impose their will. Today, we have countries like India and China and even Russia that have become very powerful. So we have to negotiate with these countries keeping in mind their perspective, not just our perspective of the world. And this is something Hillary Clinton just can’t do. She was Secretary of State so we know what her record is. She supported the invasion of Iraq. She supported and launched the invasion of Libya and she supported the war in Syria – all major disasters. And so I am telling myself, maybe after all, Trump is a better choice.Marc Faber, Economist and Publisher of The Gloom Boom & Doom Report