Global Equity Markets “Woefully Underprepared” For President Trump: Ramesh Damani

America is known for its October surprises. A lot of bombs and grenades are thrown off. We had the Donald Trump Access Hollywood tapes and now Hillary Clinton’s emails. The race is tightening.

If Trump pulls a Brexit type of victory—I still think it’s very unlikely—I think the markets will be woefully underprepared 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 kneejerk reaction is done, we will have to revaluate, which stocks to buy.

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 the get-go, it will be broadly negative for the equity markets. But on the other hand, he’s a businessman and he’s practical. Maybe once he gets elected he won’t be as draconian he was in order to get elected.

India is in a sweet spot compared to other emerging markets. Our interest rates are going down. You know all the other reasons that analysts tout on various channels. I think we’ll continue. The bull market that began in India three years ago is still continuing. When bull markets age and top out they give you certain indications. I don’t think we’re seeing any of that right now. We are just seeing vertigo from the heights that we’ve risen. Stocks have doubled, quadrupled [but] there is no technical evidence to suggest that the market is topping out. The fear to the markets come from black swan events—the ones we cannot anticipate. Donald Trump’s victory is getting pricey.

Increasingly, I am very worried about the cyber security threat that the globe is facing. I read the Confederation of Indian Industry (CII) report that suggested there will be only two kinds of companies left in the world: companies which’ve been hacked and companies which will be hacked. That points to a huge disruption. It affects the electricity grid, the internet of things grid, the banking and even entertainment industry. Those are the kinds of stocks we should be looking for in case you want some Diwali ideas.

You will be surprised if you go back and see that real estate was one of the best performing indices in the recent past. OMCs too have done really well. They’ve given dividends and bonuses. Both these sectors have happily done very well. I remain bullish on them. The case for OMCs is simple: they are cheap, they have good dividend pay-outs and they have pricing powers for the first time in their lives. Real estate is a long call. I have often said that instead of timing the market, the time spent in the market is more important. You have to believe that the Indian population is growing to the middle class and therefore big ticket aspirations will be for housing. So you want to buy the less leveraged companies with good brand names. So I continue to remain bullish on both the sectors.

I’ll tell you very simply through an anecdote. There are two billionaires in the world. They’ve become friends. Bill Gates and Warren Buffet; certified billionaires, became friends, travelled to China together, been friends for over 30 years. Buffet was once asked at a press conference why he has never bought Microsoft when he has been friends for so long. Buffet’s answer stunned me. He said because it is outside my circle of competence. I understand the candy business; I understand the credit card business but I don’t understand technology. It is very important to know your circle of competence and also know its boundaries. To give you an example of how people can use that let’s say you’re an engineer. You can look at engineering stocks. If you’re a banker, look at banking stocks. Rather than trying to follow every of the 6000 traded stocks on the last day, try and follow the 50 to 100 in which you have an edge. That is what the circle of competence is.

I’ve hinted at a few in my answers but I’ll put it in easier words. The Bank of America chairman was asked how much was his budget for cyber security was. His answer wasn’t $10 million or $100 million but unlimited. It’s a huge threat, like a freight train coming to us. We need to be very cognisant of that danger. So there will be a lot of expenditure going on in that sector. So, as a sunrise sector, I would suggest cybersecurity.