Trump ‘unpredictability’ single biggest threat to investors’ portfolios
23 May 2017
Nigel Green, deVere Group founder and CEO, considers the potentially significant repercussions for investors of the US President’s recent actions.
President Trump poses the greatest risk for regular investors in the world – even ahead of a possible recession in China – but there are also important opportunities.
Last week Trump triggered global market sell-offs ahead of his maiden foreign trip as president.
The fact that he has struck a $110 billion arms deal with Saudi Arabia on Saturday is being hailed as a boost for American jobs, his more conciliatory and statesmanlike tone towards Muslim leaders is being applauded, as is his closer working relationship with China’s President, Xi Jinping. It perhaps shows that Trump is — finally — appreciating the value and importance of good foreign relations.
However, at home Trump remains under siege following a series of scandals, including that he may have attempted to get the recently fired FBI director, James Comey, to end an investigation into the former national security adviser, Michael Flynn, and possible Russian interference in the U.S. election.”
Against this backdrop of recent events, President Trump and his administration is the single biggest threat to investors’ portfolios in the near term for four key reasons.
First, the ongoing scandals could quite feasibly distract the Trump administration from its agenda of tax cuts, deregulation, infrastructure spending and other pro-business legislative measures, which are hoped would have beneficial effects for investors.
Second, whilst in many ways, Trump appears to be less of a geopolitical risk now that he was at the beginning of his tenure, whichever way you look at it, his administration is chaotic and unpredictable – and history shows that financial markets loathe uncertainty. This was demonstrated by last week’s panicked sell-offs.
Calls growing for Trump to be impeached are growing and the risk of this happening has substantially increased since the announcement last week of a special prosecutor being appointed to look into his alleged Russian links. Clearly this is creating uncertainty.
“Whilst these waves of turbulence might be brushed off as a ‘bump in the road’, all too often investors are tempted to overreact and this can have disastrous consequences for their portfolios. Investors should have longer-term horizons for the optimum results, as stock markets generally go up over time, but acknowledge that there will be ups and downs along the way.
The unprecedented media circus around Trump magnifies the situation and this could lead to investors reacting in a knee-jerk manner that could be detrimental.
Third, with such media scrutiny, investors could miss other important geopolitical and economic risks that could affect markets and, therefore, returns. These include the downturn in China’s credit impulse that could create an important drag on Chinese growth in the near future. Of course, this could have serious and far-reaching consequences – yet few people are as interested in this, or other key risks, as they are in Trump.
And fourth, it could be reasonably argued that a market correction is needed and that Trump and the scandals following him could be the catalyst for this.
Being the CEO of the world’s largest economy, a US president’s actions and policies will always have an effect on markets and, therefore investors’ returns. But Trump’s unpredictability, the scandals that swirl around him, and the media’s obsession and magnification, make this a unique set of circumstances.
Trump is creating volatility and is likely to continue to do so. But whilst this can pose a real threat to those who are unprepared, complacent, or who overreact, volatility is good for markets and savvy investors alike, because it generates important investment opportunities.
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