How a Trump victory could impact your investment portfolio?
UOB Thailand’s shares insights on what a second-term Trump presidency might mean for investors.
Following Donald Trump and the Republican Party’s recent election victory, markets and portfolios may experience new shifts as US policy directions unfold.
In the wake of the election, initial market responses included a rally in US stocks, a strengthening dollar, rising treasury yields, and gains in cryptocurrency, with short term declines in Chinese equities amid tariff concerns.
However, with a potential Republican-led Congress, there remains uncertainty about future policy and regulatory changes, which may bring market volatility.
What this election means for markets and portfolios
- Market Outlook: While immediate market reactions have been positive, driven by strong economic fundamentals and corporate earnings, investors should brace for possible shifts in trade, inflation, and interest rate policies. Trump’s policy approach is expected to echo his previous term, focusing on tax cuts and deregulation, potentially spurring US economic growth but with an unpredictable trajectory that may result in occasional market volatility.
- US Stocks: Under an “America First” strategy, Trump’s policies are likely to favour certain sectors. Financials, industrials, manufacturing, and energy could benefit from deregulation and a shift in production back to the US. However, renewable energy may face headwinds if there is a partial repeal of the Inflation Reduction Act. Higher inflation, stemming from proposed tariffs and stricter immigration policies, could affect the Federal Reserve's interest rate cuts.
- Bonds and interest rates: Tax cuts combined with increased government spending could strain the fiscal deficit, possibly prompting the Treasury to issue more bonds. While bonds may face short-term selling pressure, investment-grade bonds still offer an attractive income stream, particularly if rate cuts materialise.
- International implications: China’s economy could feel the impact of Trump’s tariff proposals, potentially sparking new stimulus efforts by the Chinese government to offset these pressures. ASEAN and Asia ex-Japan stocks may benefit from supply chain diversification if US-China tensions rise.
Investment strategy in a new political climate
- Stay diversified and agile: Investors are advised to maintain a diversified portfolio to balance the potential unpredictability of Trump’s policies. Resilient economic growth and robust corporate earnings support a positive stock market outlook, though investors should be nimble, taking advantage of rate-cutting cycles while managing risk.
- Consider defensive assets: Investment-grade bonds, with their stable income potential, are well-suited for portfolios seeking stability amidst uncertainty. Meanwhile, ASEAN and Asia ex-Japan stocks offer attractive valuations and dividend yields, providing potential value amid evolving global trade dynamics.
As markets refocus on fundamentals, UOB Thailand encourages investors to stay informed and strategically adapt to changes in US policy and economic conditions, optimising their portfolios to manage risks and capture growth opportunities.
Gidon Jerome Kessel, Head of Deposit & Wealth Management, UOB Thailand
