US election to drive markets - but only in the short term

According to Olivia Engel who makes a healthy living picking winners in Australian and global stocks, markets are favoring a Clinton victory because it will be better for global growth, while a Trump win will create uncertainty for the future, at least in the short-term.

“Some people are saying surely not,” she says when talking about the possibility of a Trump win.

“Markets would be surprised and react negatively, but would somehow muddle through. They may have learnt to be braced for unexpected outcomes after Brexit – Britain’s vote to leave the European Union.

“A Trump win would however be bad for emerging markets and bad for US health care and infrastructure stocks, or any companies which benefit from fiscal spending.

“If Hillary Clinton gets voted in financial markets will breathe a sigh of relief, there will probably be a bit of support for the market to rally in the short-term, but I doubt it will have a long-term impact.”

St George senior economist Janu Chan says a Clinton win would be the better option for the Australian and world economy based on their proposed policies.

“We would expect the Australian dollar to fall if Trump wins and Aussie dollar to lift if Clinton wins.

“The main reason is that risk aversion will most likely lift and that tends to be negative for the Aussie dollar.”

There's also a sense that if the result is tight, both Clinton and Trump will have their hands tied to make changes, and could even be headed towards policies that are less supportive of free trade as they try to improve jobs for US citizens.

With that in mind, we asked Olivia Engel, who is responsible for managing nearly $5 billion in Australian and global equities, if she had made any portfolio changes in light of the US election?

“It is too binary an outcome to position for. From our perspective we focus on company fundamentals, so we are not trying to position for a particularly election outcome.

“We are looking for reasonably valued, high quality companies . Companies that bring a lot of volatility to portfolios are the ones we would avoid because they would react the strongest in macro uncertainty.

“For our Australian equity portfolio, we haven’t made any changes purely due to the election, nor have we for the international funds that I’m responsible for.

“We hold the companies with the highest expected return and lower expected risk.

“We don’t build a portfolio starting with a benchmark. We just build it from scratch. If we don’t like a company, we don’t own it.

“If Trump was elected, then it could have a negative impact on future company investment.

“The problem with world economic growth is companies aren’t investing for the future. If that is prolonged under a Trump administration and companies don’t want to invest in a country who’s trade walls are going up, that could prolong the period where companies aren’t investing or growing.

“Australian economic growth is impacted by that as well, so it can affect companies in Australia.

“What’s happening in interest rate policy is likely to have more of an impact on financial markets than what’s going on with the US election.”

US election aside, where to invest in the next 12 months?

“Over the next 12 months we will be impacted by changes in monetary policy because that will influence how we position in the banks – at the moment we have about a 10 per cent investment.

“We might increase the holding in the banks if rates are likely to go higher because that is when banks are likely to do better.

“Australian health care stocks are looking reasonable from a macro perspective and the staple sectors like utilities and infrastructure, which have seen a recent pull back, might do well in the next few months.

“There is bias towards rates going higher rather than lower, however I think it will be slower than everyone realizes. The key will be finding stocks that go through that rate volatility to deliver a smoother and reasonable return through that period.”

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