ASX Wrap: US Presidential Special Edition
Welcome to a special edition of the ASX Weekly Wrap in what I like to call the ‘US Presidential Edition’. With a looming Donald Trump victory I thought it was important to touch on how this could impact global equity markets and more closer to home the ASX. I will try and keep this short and sweet.
This morning’s trade was very calm and collected. The XJO traded up over 50 points at one stage as Clinton was gaining votes in all the right places and it looked possible that she was in for a comfortable win. It was around lunch, our time, that it all changed and Trump started to challenge and build momentum. From there it snowballed as Trump continued to win votes, win key states and gain uncontrollable momentum. Almost in parallel moves the XJO, and Asian markets, continued to tumble and at one stage the XJO was down -205.7 points or -3.91%. Our worst day since the Brexit vote in May. In the end the market was able to rally from its lows to finish the day 101.20 points down or 1.92%. We traded in a remarkable range of 262 points today. It seems as if volatility has reared its head again.
It is at the point now, as I am writing, that a Trump victory looks immanent even though no party has declared themselves the winner nor conceded. So why is the market so bearish and weak when it comes to the prospect of a Trump victory, and ultimately becoming US President? It mainly comes down to his ‘Protectionist’ policies and how he wants to make America great again. This includes:
- Creating more jobs for US citizens via the manufacturing industry and to stop overseas countries, such as China, taking away US jobs by making it harder for them to sell their goods to US citizens. How may he do this, more than likely, via Tariffs that make international goods more expensive than their US made counterparts?
- He wants to cap immigration and be very specific about who he lets in. Once again safe guarding US jobs.
- He also wants to renegotiate the NAFTA (North American Free Trade Agreement) between Canada, Mexico and the US. Which will probably lead to renegotiation of the FTA they have with Japan as well.
- Simplify the tax system and reduce the Corporate tax rate to 15%
- Reduce personal tax rates to three brackets of 12, 25, 33% with many paying 0% tax
- Reduce the US national debt
- Cut spending
- Reallocate spending to Infrastructure
- Make Health Care available to everyone not just those with insurance
- Bring home US troops
As you can see from above a lot of his policies are great for the USA and doing business in the USA, but not so much for the rest of the world. However at the moment he has talked in broad strokes and we have no idea how he plans on achieving some of these policies he has set out. In fact there is an argument to suggest that Trump becoming President would be Bullish for the US markets and we could see a rally. We also have no way to tell what kind of relationship he will have with the Fed. In the past he has been highly critical of them but he will need to make a statement there to clarify his position.
As for the ASX we are not too sure what it means at this stage as it’s too early to tell. Trump will have to come out and clarify his position in a few areas, however it is the uncertainty and not knowing that the market absolutely hates. At worst his policies may hurt trade with China and this then flows on to us. The more likely scenario is there will be little impact and lot of what he said pre-election was hot air and for votes. The USA needs the rest of the world just as much as the world needs the US, so it’s not like it can just cut ties and damage relations with trading partners on a whim.
I believe it’s best for us, as investors, not to panic and wait for the dust to settle. The picture will become much clearer in the next few weeks. In the meantime ride out the volatility and maybe look for buying opportunities in irrational selling, because in the end, and the foreseeable future, the Trump presidency shouldn’t have any fundamental impact on most Australian companies and their earnings. There could be some very attractive opportunities for investors available in the next few weeks, thus we need to keep on our toes.
Amid all the turmoil and uncertainty it was a great day for gold as people fled to it for safety. At one stage it traded up over $US60/ounce to $1,337/ounce, but as I write it has pulled back to around the $1,324 mark. It is still trading in the wedge I spoke to you about in last week’s wrap and setting up for a major break early next year. This volatility should create for some excellent trading opportunities for Gold companies on the ASX over the coming weeks so I will have to keep you posted.
At this point the Dow Futures are pointing to a rough night down 3.9% or 700+ points. We could get to a point where circuit breakers are triggered and the markets go into temporary trading halts. This happens when markets fall 7%, then another at 13% and finally all trading ceased for the day at 20%. I highly doubt we get to the final two but there is a possibility the first could be trigged in panic selling on the open. I will leave it there as I could be in for a sleepless night watching Europe and then the US react to today’s events. I hope you have found this little update helpful to a point and I am more than happy to discuss this further with any of you over the phone or email. Keep well and I’ll speak to all you soon.
P.S. Can you believe this guy is going to be President of the USA???
heath@hlminvestments.com.au
0413 799 315
PO Box 6014
BURTON SA 5110
Important Notice
Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.
