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Contrary to both the polls and the expectations of the vast majority of the popular media, Donald Trump has surprised the political establishment (and arguably his own party) by winning the 45th Presidency of the United States in what looks like a clean sweep of the Presidency, House and Senate for the Republican Party. This gives the Republican Party a significant mandate to shape the US policy agenda for the next Congressional term.

The initial market reaction to the Trump win has been just as surprising. The shock election result in the US overnight has left many around the globe reeling with uncertainty about what a Trump presidency means for the US and the rest of the world.

As with the unexpected Brexit vote outcome earlier this year, the election result has caused a dip in global markets. However, as with Brexit, it looks like this dip will be temporary with markets already showing signs of returning to business as usual.

Stay the course

At times of market fluctuations, it can be tempting to change course and opt for conservative investments. However, at times like this it’s important to stay the course and keep focused on your long term goals. Market fluctuations are normal and for most of us, our super has a long investment timeframe that allows it to smooth out market fluctuations and corrections over time.

First thoughts on the US election result from the experts managing your investments

Mercy Super’s investment options are invested across a broad range of asset classes and markets depending on the option/s you have selected. Each option is carefully managed to ensure you have the best possible chance of achieving your desired investment outcome.

Frontier Advisors Pty Ltd have been a long-term investment adviser to the Fund providing valuable expertise and advice to achieve the investment objectives for our members. Below they provide some commentary on the investment market implications from the US election results.

Expectations for a meaningful decline in US and global sharemarkets should Trump win seemed to be unfolding as Asia Pacific and European equity markets reacted to the growing number of states falling to the Republicans.  At one stage the US sharemarket was also down 5% before rallying back at the close of the US market session following Trump’s acceptance speech.

In assessing the potential implications of the Trump victory for financial markets and investment strategy, we need to strike a balance between what policies were announced before the election against what is likely to be implemented in the near future.  For example, both candidates campaigned to increase infrastructure spending and to review (i.e. lower) US corporate tax rates. Trump suggested during the election campaign that there could be scope for a US$500 billion outlay on infrastructure spending alone.  In addition, the President-elect has flagged an intention to cut corporate tax rates towards 15% over the next ten years and to cut personal income taxes.

In combination, this set of policies would amount to a substantial fiscal stimulus package that could underpin stronger US growth but could also lead to higher inflation, tighter US monetary policy and higher US bond yields.  Lower corporate taxes, stronger growth and the repatriation of corporate cash back into the US could also provide a meaningful fillip to US earnings making US equities more attractive than previously would have been the case.

However, we are less optimistic on policies that would result in an increase in tariffs and result in the renegotiation of various trade agreements, including cancelling the Trans Pacific Partnership and dumping the North American Free Trade Agreement.  Trump has suggested labeling China as a currency manipulator and potentially applying a 45% tariff on Chinese imports and a 35% tariff on Mexico.

Such policies would not only have a major impact on US import prices and trade flows but also raises the risk of a “tit-for-tat” trade war. Any actions that reduce global trade would likely have a negative impact on global growth in general.

In summary, the surprise win by Donald Trump, together with arguably further political event risks to come, notably from Europe and China over the next 12 months, underpins the need to maintain a well-diversified approach to investing and to take a long-term view to achieving investment objectives.

Many statements were made in the heat of the election battle that may be tempered once the practicalities of office and the need to negotiate legislation through the Congress becomes a reality.  It will take some time to determine the full impact of this election result.  We do not recommend any major reactionary changes to portfolios but we are reviewing the situation closely and assessing if opportunities present to warrant changes in portfolio positioning.

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Our in-house financial advisers can provide you with information and advice on our range of investment options. Our qualified advisers can provide you with unbiased advice based on your circumstances and in your best interests.

So, if you want to check that you’re invested in the right option/s to meet your retirement goals, you can call us on 1300 368 891, send us an email at information@mercysuper.com.au or drop in for a chat.