US Election reaction and commentary

The dust has barely started to settle after Donald Trump’s election as US President and many economic and political experts are still trying to figure out exactly what this means not just for the US, but for global economies and markets.

Our research partners at Morningstar have provided the below video which offers a short summary of what this could mean for the future and Dan Kemp, their Chief Investment Officer, has provided the following comments:

“Capital markets have been jolted by the Trump victory resulting in increased volatility in some key markets. While such episodes always create opportunities for investors who are prepared to think independently and adopt a long-term, valuation-driven approach, they nevertheless contain dangers for investors too. Chief among these is the temptation to react too quickly or with too much confidence in the wake of the outcome of this significant event.

Let us be clear, while these are uncharted waters politically, volatility in capital markets is nothing new and on this occasion (as in the past) prudence and patience will win. For this reason, we favour research over reaction and urge other investors to do the same.

While many commentators are already likening this event to Brexit, we believe this is potentially misguided as they are different in one key way: timeframe. Brexit is likely to be a permanent phenomenon, which could have a significant impact on long term economic growth and therefore be more likely to adversely affect our calculation of “fair” or “intrinsic” value. A Trump presidency is not permanent, which leads itself to sentimental change with less long-term significance.

As long-term investors, we need to appreciate and acknowledge this important difference if we are to avoid the hype and focus on the real drivers of investment returns. On this note, we must come back to the two variables to successful investing: the current price and the long-term fair value.

Ultimately, the real risk to investors of a Trump government is that it results in an impairment of the fair value of assets. At this stage, our early judgement is that a significant impairment is unlikely due to the political cycle. As we view risk as the permanent loss of capital, as opposed to short-term volatility, a Trump government is unlikely to materially shift our already conservative positioning in this regard. As always, buying assets that have a wide margin of safety is the key to successful investing.”

Our own view is that, just like Brexit, we ‘keep calm and carry on’ investing, albeit with one eye on the door as we may need to exit certain assets over the coming months in light of a change of direction.

As with the recent ‘Brexit’ vote, should you have any concerns on how the latest global events may affect your investments then please do not hesitate to contact your financial planner.

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