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Sunday, November 6, 2016

Trump vs Clinton, how is the financial market responding?

The vote for the most powerful man in this planet, (or woman in this case) is entering into its final act, and the market is shaken by the growing uncertainties surrounding it. Come Nov 8, it’s either Democratic nominee, Hillary Clinton or Republican nominee, Donald Trump that will become the new president-elect of the United States of America (US). While average polls compiled by RealClearPolitics website shows Clinton led by 7.1 percentage points in mid-October, the gap has narrowed down to just 1.7 percentage points following the FBI’s eleventh-hour resuscitation of her email controversy (as of Nov 6).

Real Clear Politics average on US election polls (Source: Real Clear Politics)


Well, here is a quick look at the world equity index in the past one week, and it's shocking.

In the Americas region

In the Asia Pacific region

In Europe, Middle East & Africa region
Source: Bloomberg website

It is shocking because for the last one week, almost the entire equity index has been in the red. Some of the market analysts have been saying that the market is starting to price in the possibility of a Trump's win in the US election.

Generally, a Trump presidency could mean uncertainty in the views of investors while Clinton's victory would mean status quo. A lot of the analysts are saying that the market is in a "risk-off" mode, which probably explain why gold is on its one-month high as investors go for safe-haven assets.


According to iFast research, it is best not to bet on who's the winner for the US election. 

As long term investors, we advocate investors not to predict or even bet on the eventual results of political developments. Not too long ago, Britons went to the balloting stations to vote on the UK's future as part of the European Union (EU), and many expected Britain to remain in the EU. However and rather shockingly, the vote outcome was for an exit and departure from the EU (termed "Brexit"), and the sudden risk aversion in financial markets worldwide on that fateful Friday suggests that the consensus was surprised by the outcome. Due to the inherent unpredictability of political events, we note that they are difficult to model and anticipate in advance.


According to ForexTime, here is a winners and losers lists if Trump wins:


Gold – The natural safe-haven appeal should drive demand from investors due to both shock and possible uncertainty ahead through the roof.
Yen – This would represent another nightmare scenario for the Bank of Japan (BoJ) and is completely the opposite to what the central bank desire, however there is no doubting the undeniable fact that in times of uncertainty the Japanese Yen suddenly finds itself as a trader’s best friend. 
British Pound? – This one is a little whacky and far less probable than increased demand for Gold and the Yen, although it would not be unusual or surprise me if the weakest currency of 2016 finds itself regaining some losses as a result of spectacular drops in Dollar demand. 

Stock markets – There is a chance that investors will go into a “risk-off” mode for a prolonged period if Donald Trump shocks the world next week. This means a significant reduction in risk appetite diminishing investor attraction for riskier assets and the stock markets are considered as one of these. Although this will not be mentioned right away, Donald Trump has an obvious bias for higher US interest rates and this is why so many analysts are negative on stocks if Donald Trump wins.
Peso – It doesn’t need to be elaborated on much more than the pure fact that Donald Trump is clearly anti-Mexico. Trump winning is seen as a negative for the Mexican economy, and the Peso will react in the same ways it has done since the beginning rounds of the US Presidential Election debates. 
Oil? – This hasn’t been touched upon very much, but Donald Trump winning the Election could have negative consequences on the price of oil. Forget about the ongoing will they/wont’ they cut production saga from the OPEC Committee. Donald Trump becoming the President of the United States could result in growth forecasts being downgraded at least in the short term due to investor uncertainty, which will in theory weaken demand for commodities like oil and weigh on the valuation of oil.

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