— CNN (@CNN) November 9, 2016
Donald Trump as US President: Pros and Cons for your finances
Here at Canstar we’re not economic forecasters, but we’re well on top of the latest financial news in Australia.
Based on what’s been said by local economists and financial commentators, here are some of the possible pros and cons of a Trump presidency for the finances of everyday Australians.
|Estimated Pros||Estimated Cons|
Donald Trump win ‘Cons’ in more detail…
Stock market volatility
Judging by how the markets have behaved in the lead up to the election, it was clear investors were afraid of a Trump president. Every time opinion polls put Trump closer to a victory, markets fell and when Clinton pulled further ahead, they rallied. As the votes were counted and a Trump win looked more likely, the Australian share market began falling. Since then, billions of dollars have already been wiped off the value of Australian shares. But why?
— 9Finance (@9Finance) November 9, 2016
The fact is share markets have a distinct fear of uncertainty. We saw that around the world following the Brexit vote. Investors weren’t sure how the UK leaving the EU would affect business, so markets immediately dipped as the leave result became clear (and keep an eye out for more BREXIT volatility over the next two years).
In the case of the US presidential election, Clinton was viewed by investors as a known quantity – they generally knew what to expect from her. But with Trump it’s quite the opposite. His tendency for impulsive decision-making has left many investors clueless as to what to expect from him. That, in itself, poses a major threat to global economic stability. “Better the devil you know” as they say.
AMP Capital chief economist Shane Oliver had forecast global stock market falls of five to 10 percent in the instance of a Trump win. We’ll soon find out if he’s right.
Super balances (with exposures to shares) take an immediate hit
Many Australian superannuation funds have a reasonable exposure to share markets, both Australian share markets and overseas markets. Certainly default asset allocations tend to be a “balanced” fund, with approximately 60% exposure to shares – and many Australians have their money invested in a default fund.
So since most Australian super funds invest in shares (both local and overseas), a share market fall – or even just ongoing volatility is going to hurt the balances of many super funds.
More economic threats
Trump’s protectionist policies are a strong threat to the economies of some of Australia’s closest neighbours and biggest trading partners.
For example, he is threatening to put a 45 percent tariff on imports from China. Obviously this could seriously hurt China’s economic growth – something which Australia greatly relies upon.
China buys Australian mining and agricultural products and is a huge supporter of our country’s education and tourism sectors. Without a fast-growing China, Australia would have a much higher unemployment rate.
In that sense, with Trump in power, there’s a bigger threat to Australia’s trade-exposed economy.
Australian dollar could weaken
With the indirect threats a Trump victory will have on Australia’s economy, it has been forecasted his victory will cause the Australian dollar to weaken.
A weaker AU dollar means Australians get less bang for their Aussie bucks overseas. Think bigger travel budgets and more expensive price tags on overseas products.
Increased chance of an RBA rate cut next month (bad for savers)
RBA Governor Phillip Lowe noted in October that the possible election of President Trump “wouldn’t be as benign an event” as Brexit turned out to be. This suggests there’s now an increased chance of the RBA cutting interest rates next month.
This was also the belief of Shane Oliver, chief economist of AMP Capital.
..can't see an RBA move in Dec (unless maybe if Trump wins)…but likely another cut next year
— Shane Oliver (@ShaneOliverAMP) November 1, 2016
Those with large cash savings and no debt, such as retirees, will not be happy to see an interest rate cut come sooner. But the RBA will analyse a range of Australian economic indicators before making up its mind.
Donald Trump win ‘Pros’ in more detail…
Buying opportunity for share market investors
The immediate global stock market volatility that’s taken place has possibly presented a good buying opportunity for savvy investors. There could be some great quality stocks now available at cheaper prices. Of course, the increased global economic uncertainty poses a threat to the long term performance of those stocks.
That said, and putting it in perspective, the share market has survived a couple of World Wars, oil crises, the GCF and numerous small crashes over the past 100 years – there’s certainly no doubt it can survive another change of president!
Gold and bond investors enjoy a price rally
Experts had forecasted investors to flee to ‘safe haven’ assets such as gold and Australian bonds in the event of a Trump win. We’ve already started seeing that, with gold prices beginning to soar.
— Ross Greenwood (@Ross_Greenwood) November 9, 2016
This would’ve already generated some decent returns for investors in those assets.
Weaker Australian dollar makes Australian exports more competitive
The Australian dollar was expected to weaken in the event of a Trump win. A weaker Australian dollar can actually be quite beneficial for the Australian economy. It means Australian exports become cheaper on the global marketplace and thus easier to sell. Tourists are also more likely to come here when the Australian dollar is lower.
But the increased threat of a global trade-war under Donald Trump could significantly hamper the trade benefits of weaker Australian dollar.
RBA more likely to cut interest rates in the near future
Mortgage-holders might’ve been hoping for an interest rate cut before Christmas, and a Trump victory could give them a chance of one. Of course, the RBA will take into account the health of the Australian economy before making up its mind about whether or not to cut rates in December.
This general advice has been prepared by Canstar Pty Ltd A.C.N. 053 646 165, Authorised Representative no 443019 of Canstar Research Pty Limited A.C.N. 114 422 909 AFSL 437917. The information does not take into account your individual investment objectives, financial circumstances or needs. Consider whether this advice is right for you. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Refer to the PDS before making a purchase decision. Read Canstar’s Financial Services Guide at www. canstar.com.au.