The recent election results in the US have seen significant waves through the investment landscape, with fund managers expressing varying opinions on its potential impact.
While some believe there can be opportunities for growth, others have flagged increased uncertainty.
Sustainability
According to Nazmeera Moola, chief sustainability officer at Ninety One, the Republican win could signal a US retreat from all global climate initiatives, as was observed during the first Trump presidency.
“This is likely to slow momentum to combat climate change unless other parts of the world step up and fill the gap,” she said, pointing out that China and India will continue to focus on energy transition-related investments.
Still, Moola opined that, while a red sweep is “net negative for climate considerations”, a blanket repeal of all elements of the US Inflation Reduction Act, passed in 2022 towards bolstering clean energy initiatives, remains doubtful.
“Other considerations include the impact of the prospective tariff hikes on the cost of new renewable projects in the US and the likely expansion of oil and gas exploration on federal lands as environmental regulation is rolled back,” she said.
Australian stocks
Australian companies are also likely to be impacted by Donald Trump’s pro-US growth and inflationary policies, observed Chris Haynes, head of equities at Equity Trustees Asset Management.
“The combination of greater tax cuts, higher government spending and prospect of significant tariffs are likely to keep inflation higher and reduce pace of interest rate cuts,” he said.
Particularly, companies with US dollar exposure should be beneficiaries of a pro-business administration and a stronger US dollar, such as Macquarie, Computershare, and CSL.
However, other areas of the market like Australian commodities could bear the brunt of a “US first/aggressive China push”, impacting companies like BHP, Rio Tinto, and Fortescue, Haynes said.
US equities
Schroders’ head of global equities, Simon Webber, said the fund manager remains constructive on US equities on a 12-month view, given corporate tax cuts and deregulation could prove supportive.
“There are some risks to corporate profitability from a Trump win as tariffs could pose a headwind for profit margins in some sectors where there is still a reliance on China-imported goods. Meanwhile, an expected clampdown on immigration could drive wage growth, particularly in consumer and construction sectors,” he said.
“These are inflationary dynamics. Companies with pricing power [the ability to raise prices without denting demand] should fare better in this environment although demand destruction may be a feasible scenario.”
Trump’s proposed corporate tax cuts and deregulation will also serve as headwinds, supporting areas like larger banks and artificial intelligence, Webber added.
Meanwhile, Tim Murray, capital markets strategist at T. Rowe Price, agreed that US small caps could benefit from Trump’s win, especially if the administration rolls back regulation and adopts a softer stance on M&A.
“Small businesses have been cautious leading up to the election, so more clarity on policy may prompt them to rebuild inventories and step up business spending. The potential for further corporate tax cuts and for the Fed to ease monetary policy would also be tailwinds,” he said.
Yields
While the resolution of uncertainty and the positive growth implications from the election outcomes have led to significant gains in US equity markets, the US dollar, and Treasury yields, Stephen Dover, head of the Franklin Templeton Institute, warned of the potential risk of higher bond yields.
“The chief risk for US and global equity markets is rising bond yields. To the extent that higher yields represent stronger growth expectations, the outcome is less problematic,” he said.
However, to the extent they reflect a rise in inflation expectations or a crowding out of investment due to projected large fiscal deficits, higher yields “could cap overall equity returns”.
“A related risk is that the Fed could halt its easing of US monetary policy and might even perform a U-turn with rate hikes. Rate increases could happen if accelerating growth leads to higher inflation. In that scenario, bond markets will watch closely for signs the Trump administration might try to curb the Fed’s policy-making independence,” he said.
Chris Iggo, chief investment officer, core investments at AXA Investment Managers, highlighted how the market response to a Trump win is a “rerun of 2016”, with higher yields having bottomed in September only to rise 62 bp by election day.
“If the pattern of 2016 is to be repeated, then we could be looking at yields continuing to increase another 100 bp or so over the next year or two, giving a nominal yield of around 5.5 per cent,” Iggo said.
However, he also noted the pattern of 2016 saw yields “not really move that much higher” after the initial post-election jump.
“Between the end of November 2016 and November 2017, the ICE BofA US Treasury index’s total return was 2.0 per cent. Yields actually fell for part of that period,” he said.
Currencies and commodities
Also reflecting on Trump’s 2016 win, Global X pointed out the US dollar at the time appreciated sharply against major currencies, driven by expectations of fiscal stimulus, tax cuts, and infrastructure spending.
“This may recur with a Republican-led administration, supporting the USD, especially in trade-exposed regions,” it said.
Oil, too, rallied following the 2016 result, benefiting from Trump’s pro-energy stance, which favoured traditional energy sectors.
For Global X, a similar approach today could support fossil fuels and infrastructure, with potential easing of regulatory barriers allowing for production expansion.
However, it cautioned external risks, such as OPEC’s decisions and China’s slower economic recovery, could “limit oil’s upside potential”, even with US policy support.
The fund manager also flagged potential price movements from gold amid Trump’s pro-growth policies and renewed fiscal stimulus.
“Nonetheless, tariff and geopolitical uncertainties could intermittently sustain demand for gold as a hedge,” Global X said.
Viewing macro as a ‘tool’
Meanwhile, fund managers like GQG have flagged that macro events like the elections can instead offer “a better understanding of the rules of the game”, noting that as it relates to the US, given this has been fairly stable, “whoever is in the White House generally hasn’t mattered”.
“If we look at 50+ years of data, going back all the way to the bygone period of 1969, in absence of a major economic decline [and generally multiple declines], US stocks, as measured by the S&P 500 or the MSCI USA Index, have generally gone up. Now we know that past performance is not indicative of future success, so obviously things can change,” said Josh Snyder, GQG’s global investment strategist.
Ultimately, the fund remains more focused on “preparation over prognostication”, he explained.
“Our view is that earnings are like gravity. Show us where the earnings are going, and ultimately, we believe the price will map to that. To the extent that possible policy changes, from tax cuts to regulatory changes or tariff implementation actually impact earnings growth, we’ll react to the data.
“Simultaneously, if short-term headlines increase volatility for names where we believe the fundamentals are unchanged, we’re happy to harvest that volatility as well.”
He continued that investing “is about adjusting the sails” rather than predicting the wind.
“To us, the biggest risk to a business is often execution, rather than elections,” Snyder said.
