Trump Election Uncertainty Replaced by Inauguration Anticipation

THE CONFERENCE CALLER: Uncertainty has ruled the airwaves and markets in recent times, thanks in no small part to global political machinations.

The Brexit secession and the election of Donald Trump did their best to scare the pants off the global investment community, but – as we have seen – not badly enough to keep everybody away for too long.

The Brexit vote resulted in a big tumble of world markets, yet this was recovered in a relatively brief time – compared to other recent global financial disasters – once the dust settled and everybody realised that the sun would rise the next day and the moon would sometimes be bigger than usual.

Of course, the election of The Don (Trump not Bradman), was also unexpected, and it was the moment of uncertainty as the votes were counted that saw the Australian market poo its collective trousers.

“The ASX reaction to Trump being elected was quite fascinating,” BDO partner, corporate finance Adam Myers told the Low Emission and Technology Minerals Conference in Perth.

“The ASX 200 fell to a low of 5052 on Wednesday and the rebounded to 5370 by the end of the week.

“Interestingly, looking at the everyday trading – it wasn’t the point where Trump secured victory, rather the point in time where it looked as though he was likely to win that the market collapsed.

“It was that uncertainty the market didn’t like.”

The fascination with the market Trump-effect has not ended, however, as we are now in the transitional phase leading up to his inauguration in January 2017.

The Don campaigned on a number of key platforms, those of which that received most coverage were those most likely to have a major economic impact.

These were cuts in the corporate and personal tax rates, increased infrastructure spending, and a raising of the minimum wage.

“All these policies that he really hit the headlines with are expansionary and are likely to fuel global trade,” Myers said.

“However, he also came out with a lot of headline grabbing protectionist policies – taxes on China’s imports to the US at significant levels that would really disrupt global trade.

“If the protectionist policies prove to be political bluff and campaign-speak, then we could see a boost to global growth – it could be a real shot in the arm for the world economy.

“Naturally Australia would benefit from this with the US being a significant source of capital flow into the country in terms of investment, and also with China being a major trading partner with the US.

“China is our number one export destination, so any increase in the US-China relationship is a positive for us and is likely to flow-on to commodity prices.”

Myers suggested that should Trump’s policy agenda turn out to be of a protectionist nature and does have an impact, it is likely that China will bear the significant brunt of those policies.

This, he said, could see the giant Asian dragon turn nasty and return fire by introducing similar protectionist policies as it attempts economic stimulus internally.

“Whilst that may lead to some commodity price weaknesses, Australia is likely to be less impacted by the way China could respond,” he said.

“We are quite lucky in that we do have that direct link to China.

“If China does go to an internal infrastructure-driven approach to try to keep their local economy going, we may be cushioned from that a little bit.” 

Myers said a key factor the Australian government will have to deal with should the situation arise, will be how it manages relations with both nations.

“It is important that we don’t try to push towards one rather than the other…it’s important that we court both governments and we try to smooth the relationship between the two,” he said.

“The free trade that our government negotiated in recent times looms large as something that will be a real benefit for us.”