The success of the Republican Party in both chambers of Congress increases the likelihood that Mr. Trump will be able to carry out his policy platform, agreed Julian Mayo, London-based co-chief investment officer of Charlemagne Capital Ltd. “From an emerging markets perspective this would include a greater degree of protectionism, even if a businessman such as Trump surely realizes that global supply chains and consumer expectations mean that economic isolationism is no longer an option.”
But there are potential positives. A sell-off in the U.S. dollar would reduce the weakness of emerging markets currencies, which Mr. Mayo said has been a “cause of stress for financial assets” over the past three years. And while it is too early to see what Mr. Trump's presidency would do for the U.S. let alone the global economy, there might be bright spots among those with a lower exposure to international trade. Mr. Mayo highlighted India as a country that may increasingly be seen as a safe haven in this way. “Russia, too, could stand to benefit, with the possibility of an early removal of sanctions.”
Mr. Siracusano did warn that, although there's potential for Mr. Trump to work with Congress to pass regulatory and tax reforms, any move toward trade friction or protectionism could be seen as unsettling for global markets.
Mr. Okada also said that it's far too early to discern the long-term effects on global trade and geopolitical factors. “The burden of running the world and the country calls for some moderation and consensus-building, so I think some of the statements he made on the campaign have been reckless and inflammatory from a geopolitical standpoint,” Mr. Okada said. “I hope the checks and balances of the system will prevail here.”
Despite all of this uncertainty and confusion, BNP's Mr. Morris did note that there are limits to how important the president of the U.S. is, regardless of who takes on the role. “As far as markets and the economy are concerned, the (Federal Reserve) matters more than the president does,” Mr. Morris said.
“For investors, facts are facts, and the election result will not change in just one night the macroeconomic situation such as low interest rates and cheap oil,” said Philippe Desfosses, CEO of the e25 billion ($27.5 billion) Etablissement de Retraite Additionnelle de la Fonction Publique, Paris.
But Mr. Desfosses acknowledged markets will be affected. “Some U.S. stocks will be hammered, but others should benefit — on aggregate for an investor globally invested in the U.S. stock market, the only question is whether or not the new administration will be able to give the U.S. economy a boost, and make growth more inclusive.”
In the near term, investment executives are holding their positions, and keeping an eye out for new opportunities.
Executives at the 250 billion Danish kroner ($36.9 billion) PKA, Hellerup, Denmark, are among those taking a “wait-and-see approach ... because we don't know how it is going to unfold: how much the things talked about in the campaign are really going to unfold, and how much can unfold,” said Inger Huus Pedersen, Copenhagen-based head of fixed income. “We already have a well-diversified and robust portfolio that will sustain shocks in equity markets and the like. We did not take any special precautions toward the elections.”
She said executives “have been satisfied with our portfolio and if we want to change something, we need to have some more knowledge about what the American government's intentions are, and the potential effects on our investments.”
Executives at the 805.7 billion Danish kroner ATP, Hilleroed, Denmark, also are confident in its portfolio's ability to ride through any impacts of the election result. “We have a contingency plan prepared to mitigate the market reactions,” said Kasper Ahrndt Lorenzen, chief investment officer. “Political risk is an ongoing part of the markets and I'm confident that the robustness of the portfolio can withstand this event as well.”
And there may even be opportunities. “Donald Trump has talked a lot about potential infrastructure investments and the like, and obviously that is something we like and fits into our portfolio. That might be an area where we would be interested — along with other pension funds, I would think,” Ms. Pedersen said.
At Pioneer Investments, Cosimo Marasciulo, Dublin-based head of European government bonds, said managers there “added to our short-duration position in 10-year German bunds, based on a view that the market is looking for reflation/risk-on trades, and core fixed income should underperform in such an environment.” Minor adjustments were also made to foreign-exchange positions, he said.
Some money managers are searching for the opportunities as a result of Mr. Trump's victory. “While (it) creates more uncertainty and likely more volatility in markets than would have been the case under (Ms.) Clinton, this may prove to be an opportunity for active managers,” said Martin Horne, London-based head of European high-yield investments at Barings LLC.
“Specifically in the high-yield markets — both in the U.S. and in Europe — we've continued to see macro and geopolitical shocks followed by periods of volatility that create buying opportunities where credit prices become decoupled from fundamentals.”
Mr. Horne said executives at Barings have found these times “to be some of the best for generating alpha in high-yield strategies, and we are focused on capitalizing on these opportunities as they arise. Additionally, the more uncertainty we see, the greater the likelihood that the pace of rate hikes in developed markets including the U.S. will slow, as it has when concerns about the commodity cycle and global growth have surfaced.” This, he added, would likely have positive benefits for risk assets, such as high yield.
