The “Brexit effect” has continued across the Atlantic.  In the US, the alienated have again triumphed over the uninspired and the self-interested.

It is important that UK investors understand the implications:

  • The Trump mandate is to rebuild the US (literally) and create jobs.
  • Good news for “ordinary” people will be bad news for corporates.
  • GDP will not necessarily be hit, in fact there might be a boom in the next year or two.
  • Although company profits will likely be hit and margins squeezed, higher incomes will boost the wider economy, as will greater fiscal spending.
  • An economic boom (GDP somewhat higher) will not necessarily help equities if profit margins are squeezed, and valuations are already very stretched.
  • Pharmaceuticals and biotechnology, “old economy” industries, banks and oil should benefit.
  • Gold might bounce for a few weeks, but this would be an opportunity to take profits – the big trend remains down, the up move since January this year being a correction against that larger trend.
  • The US dollar will bounce.
  • Bonds will be volatile, but directionless. Right now, there are still no inflation pressures of concern (this might change during 2017)

But debt remains an overwhelming problem (not just in the US).  This means they must come up with novel ways to finance big infrastructure projects – on which see our prior blogs on “helicopter money“.  Interestingly, such a move can only encourage the UK and the May administration to do similar.

Emerging markets will be hurt by a US which is more protectionist – but not all.  The reform-minded economies (e.g. India and Indonesia) will continue to drive forward.  It is a similar story for Asia as a whole – we need to keep a close eye on which funds have adjusted to the new reality of a world that will be de-globalising at the margin.

Europe is in the cross-hairs.  We now have another precedent for alienated voters not just fighting back, but winning.  The referendum in Italy at the end of this month could have somewhat more serious consequences if the Government loses, and in an ensuing general election an anti-EU party is elected.

UK-based investors do not need to panic.  As was the case post-Brexit, continue to focus on longer term positive trends around the globe – where there is outstanding value, where middle classes are emerging, where there is reform and young populations, and where there is reliable income.  In particular, UK-based investors must continue to seek out global opportunities, while also being careful to sidestep the negative consequences of anti-Establishment waves in the West.

P.S.  If you remain inconsolable, remember this:

  • Ronald Reagan was definitely the riskier bet in 1980, he raised tariffs right away and oversaw a deep recession and initial 20% fall in the market – which then tripled in the following 6 years!
  • Richard Nixon was, as we now know, paranoid, angry, a liar, and a racist – yet he managed major accomplishments, even though it is Watergate for which he is most remembered.