The shock surrounding Donald Trump’s victory in last week’s election was palpable for everyone, not least the global financial markets. The markets were expecting and pricing in a Clinton win, and investors have been reacting to the volatility ever since the result was announced. The US is now expected to get a short-term economic boost from Trump’s policies, but how will that resonate with the global markets?
“When it became clear that Trump was going to win, the markets started selling off throughout Asia, and I was afraid, just like I was with Brexit, that we were going to have a bad backlash across the financial markets,” says Senior Vice President & Chief Investment Officer at the Mandeville Group of Companies, Ray Sawicki. “It’s the uncertainty that the man himself represents. But, we didn’t see the marked downfall and that’s because Trump softened his controversial views.”
Sawicki believes that Trump will abandon the tactics he adopted over the past 12 months and will now shift towards a more a centralist approach in his policies, tone and views. Despite the possibility of Trump toning down his approach, volatility can still be expected due simply to the unknowns that a Trump administration creates. However, Sawicki does believe that certain sectors will get a boost and present some attractive opportunities for investors.
“Healthcare is certainly one sector that has the potential to benefit, and some of Trump’s initiatives will have a positive impact for drug manufacturers,” he says. “The energy sector will also benefit. Trump said he’d be willing to open up discussions on the TransCanada Keystone XL Pipeline and I think just the contemplation of that will have near-term positive benefits for the industry. And, I don’t think anyone will say there are not opportunities in infrastructure investments; infrastructure related companies and sectors will benefit from increased spending.”
Although the political shift south of the border is creating plenty of market uncertainty, Sawicki thinks investors should ignore the negatives and instead consider the new opportunities. He’s seen a lot of portfolios gravitate towards elevated cash positions, but seeing as the dire scenarios some expected haven’t come to fruition is it prudent to maintain those positions? “Partly yes, if you’re worried about volatility: it’s not going to be a smooth ride over the next year,” Sawicki says. “But there will be pockets, particularly in the energy, healthcare and infrastructure sectors, where the upside potential outweighs the downside. I think redeploying capital opportunistically into solid names in those sectors will probably play out to investors’ financial advantage.”
Sawicki has noticed that whenever there is uncertainty or bad news in the markets, advisors tend to steer away from those topics and avoid tough conversations with their clients. “But these are the times when clients need their advisors most, for reassurance and direction; it’s when advisors earn their money,” he says. “In these challenging times, the smart advisors pick up the phone and reassure their clients about the long-term trajectory and give them advice around short-term. Sometimes that involves reducing risk and moving to more defensive sectors and elevated cash positions, but not making wholesale moves.”
Sawicki also encourages advisors to be vigilantly looking for opportunities to effectively deploy capital. “In these types of events, whether it’s the financial crisis of ‘08-09, Brexit or European austerity, there are always opportunities,” he says. “People always focus on the negatives but when markets move downward there are opportunities to capitalize, and those are conversations that advisors must have. Don’t steer away from your clients; this is when they need you.”
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