Wall Street welcomed a new Trump presidency with a 3.5% rally. Photo / 123RF
Wall Street greeted Donald Trump’s emphatic win in the United States presidential election with a 3.5% rally, but the reaction in the rest of the world was more sombre as investors pondered what the likely impact of a tighter world trade regime would be.
US 10-year government bond yields had been rising in the lead-up to the election and have continued to shift higher, reflecting risks to inflation from potential election policy outcomes, including higher tariffs and lower taxes.
New Zealand bond yields have also risen in sympathy, which could prove a headwind for the yield-sensitive local sharemarket.
The potential reshaping of trade policy by a Trump-led US government remained the biggest uncertainty for capital markets, Harbour Asset Management portfolio manager Shane Solly said.
The election win also signals worries that Trump’s proposals will fuel an already huge budget deficit and spur higher bond supply.
While it’s unclear as to whether Trump would follow through on his tariff threats, there are potential risks for New Zealand’s biggest listed company Fisher and Paykel Healthcare, which counts the US as its largest market.
F&P Healthcare has substantial manufacturing facilities in Mexico, a country Trump has threatened to impose tariffs on.
The plant operates under a “naquiladoras” structure, which allows companies to capitalise on a cheaper labour force in Mexico and also receive the benefits of doing business in the US. It is a structure that has benefited from US trade agreements in the past.
“It’s quite established, and there hasn’t been any discussion about changing that, but it’s always a risk,” Solly said.
“An important point is all F&P Healthcare’s competitors produce product outside the US so they will face tariffs – so we may see some more onshoring.”
F&P Healthcare is due to report its half-year result on November 27.
Solly said a re-shaped American trade policy looked to be the biggest uncertainty, adding rising bond yields would be a significant hurdle for sharemarket investors.
Trump’s win was good for the US sharemarket and the US economy “but here are question-marks for the rest of the world”.
“We need to wait and see what policy actually comes out, because there has been a lot of noise.
“We may face more a uncertain trade environment in the near term.
“We have to be careful about jumping. There is a long way to go to find out what policy comes out.”
Solly expects the market to “chop sideways” until there is more certainty.
“For New Zealand, the negative impact of tariffs is a consideration for both economic growth and company profits.”
However, Solly pointed out New Zealand’s exports to the US are only a little over 10% of total exports.
“Overall, we find few reasons to change our positive stance on local equities.”
ASB Bank said the election win will have far-reaching repercussions for the global economy and financial markets, with New Zealand potentially heavily impacted.
Nonetheless, the US Federal Reserve is widely expected to cut its Fed Funds rate by 25bps today.
The next company reporting season of mostly first-half results is set to show the economy went from bad to worse during the March to September 2024 period, Forsyth Barr says.
But the broker says that is all well understood and in the past.
“Luckily, the market has a short memory,” it said in a research note.
On the positive side, the past few months have seen a 50-basis-point cut in the official cash rate, a business confidence survey hitting a 10-year high, and proposed fast-track legislation for numerous major construction projects.
“As unintuitive as it may seem, we approach this earnings season with one of our largest positive bias since we introduced our positive/negative biases,” Forsyth Barr said.
“But we also approach it with a heightened degree of nervousness.
“Management may shy away from admitting to seeing green shoots — once bitten, twice shy.
“The green shoots that appeared at the beginning of this year came back to haunt management.
“Will the market see through both a weak result and a cautious management? We think it will.”
As the end of the year approaches, 2025 should see further interest rate falls, economic growth, and potentially some house price inflation.
“While we expect a weak reporting season from the property sector, with adjusted funds from operations (AFFO) down 11% and dividends per share down 5% on average, there could be a couple of important milestones: (1) earnings headwinds from rising interest rates should be abating, and (2) asset book valuations should be starting to stabilise.”
Those companies with potential to surprise on the upside included Asset Plus, which is expected to settle the sale of its Graham Street property this month, after which the company will be $27 million in net cash.
Software company Gentrack’s $200m revenue guidance looks conservative, and the risk is skewed towards a beat. Gentrack reports on November 26.
On the negative side, One NZ - formerly Vodafone NZ - is unlikely to be positive for Infratil, which reports its half-year on November 13.
Electronic components maker Rakon reports its half-year result on November 27.
Investors will be looking to see if there is a definitive turn in Rakon’s weak telecommunications and positioning markets.
Fonterra plans to de-list its units from trading on the ASX but will retain their NZX listing.
The co-op, in cost-saving move, outlined changes to the way its farmer-only shares and its more broadly owned units are traded.
There will be no changes to the way farmer shareholders trade shares or to who can buy shares in the co-op, it said.
When the co-op’s previous capital structure, Trading Among Farmers, was implemented in 2012, a dedicated private market was set up by Fonterra and the New Zealand Stock Exchange for farmer shareholders to buy and sell Fonterra shares.
Now that the co-op has transitioned to a flexible shareholding capital structure, Fonterra said it was moving the current private market over to the NZX main board.
Fonterra expects the NZX change to occur early in 2025.
The co-op said the dual listing for its units was no longer required to promote liquidity - just 4% of the units are currently held through the ASX.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
Liam Dann answers reader questions on economics.