What will Donald Trump's election victory mean for markets? Photo / Getty Images
John Carran is director of wealth research at Jarden.
OPINION
A complex picture is emerging of the potential impact of US President-elect Donald Trump’s economic agenda on the global investment landscape.
While certain sectors in the US, particularly those with a domestic focus, are likely to benefit from policies like tax cuts and deregulation, others could face risks from restrictive immigration and protectionist tariffs, with the potential for retaliatory actions from other countries.
The impact on New Zealand will likely be mixed.
Initial market reactions
Following Trump’s election victory, initial market reactions suggest a degree of optimism among investors, with US equities experiencing an immediate surge.
This enthusiasm is likely fuelled by anticipated tax reductions for corporations and individuals, along with expectations of a less stringent regulatory environment. However, this initial exuberance may be short-lived as the longer-term implications of Trump’s policies become clearer.
Potential winners
Several US-based sectors could benefit under Trump’s policies.
Banks are expected to benefit from deregulation, potentially leading to increased profitability. Expectations of higher interest rates could further enhance their earnings potential. The oil industry may also see favourable policy shifts, including access to government-controlled land for drilling, in alignment with Trump’s emphasis on US energy independence.
Smaller companies, particularly manufacturers with a strong domestic focus, are likely to find themselves shielded from international competition by protectionist policies such as tariffs.
Sectors at risk
However, there are potential downsides for certain sectors, including US retailers and multi-national companies. Retailers may struggle to absorb the increased costs associated with tariffs, potentially squeezing their profit margins.
Additionally, demand for their goods could be dampened by the administration’s immigration policies, which aim to restrict both illegal and legal immigration.
Multi-nationals, particularly those generating significant revenue outside the US, face the risk of being targeted by retaliatory tariffs in other markets, potentially impacting their global sales and earnings.
Global implications
Trump’s policies are expected to reverberate beyond US borders, with impacts extending to major economies such as China and Europe. Chinese exporters to the US e are likely to be significantly impacted by tariffs, leading to reduced profits.
European industries, especially in the automotive and luxury goods sectors, may also feel the strain as tariffs reduce their direct exports to the US, potentially leading to a squeeze on profits for many European manufacturers.
US monetary policy
Stricter immigration policies could constrain the US labour market, potentially fuelling inflationary pressures and prompting the Federal Reserve to maintain higher interest rates than previously anticipated.
This could have a knock-on effect on US economic growth and potentially impact corporate earnings across a range of sectors.
Additionally, Trump’s expressed desire for greater control over interest rates has raised concerns about the potential erosion of the Federal Reserve’s independence. This uncertainty surrounding monetary policy could lead to increased volatility in financial markets and potentially dampen investor confidence.
What does this mean for New Zealand?
New Zealanders are likely to feel the impact of the Trump administration policies in several ways. In the short term, KiwiSaver accounts with exposure to global shares will benefit from the global share market rally and appreciation of the US dollar spurred by Trump’s victory.
A stronger US dollar could lead to a relatively subdued New Zealand dollar, making exports more competitive, albeit with the downside of more expensive imports.
Longer-term, it is unclear what the impact on global share markets will be, but larger swings in share prices may become the norm. To the extent that Trump’s policies cause interest rates to be higher, this could raise the cost of Kiwi longer-term fixed-rate mortgages.
The actual impact of Trump’s policies will depend on a variety of factors, including the specific details of policy implementation, the response of other countries, and unforeseen events that may shape the global economic and political landscape.
Investors are encouraged to stay informed, seek professional advice, and carefully consider their individual investment objectives and risk tolerance before making any investment decisions.
Jarden Wealth Limited is an NZX Advisory firm. A financial advice disclosure statement is available free of charge at jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement/.
Full disclaimer available at https://www.jarden.co.nz/disclaimers/wealth-management.
Firm's stock has tripled since August on a string of good news.