Investment commentators were quick to name winners and losers from Donald Trump’s surprise election win. The truth is, nobody knows. Uncertainty is rife as markets digest a pivotal moment in history and its profound implications for the global economy.
The big unknown is whether Trump sticks with his outrageous vote-grabbing election promises, such as building a wall with Mexico. Or if the United States Congress will reign in Trump and moderate some of his extreme policies.
I cannot see Trump moving to the political centre or adopting more rational economic policies, to appease the left. His ego will not allow it. Persistent market volatility over the next year is a given as investors contemplate how a Trump Presidency changes the world.
The US writes the global economic roadmap and Trump is now its author-in-chief.
Gold is the obvious winner. The precious metal spiked on signs that Trump could win the election, although gains were less than expected. Australian gold producers, such as Newcrest Mining jumped 10 per cent on Trump’s victory as equity markets fell.
One scenario is US fiscal expansion, by virtue of greater government spending on infrastructure and defence, driving inflation higher. That means higher US interest rates and would be bad news for gold.
A likelier scenario is more investors turning to gold in the next 12 months as a ‘risk-event’ hedge and insurance protection. The uncertainty over Trump will weigh on the US economy and the Greenback, particularly if he politicises the US Federal Reserve, and its Chair, Janet Yellen, resigns, as expected. Lower-for-longer US interest rates is a positive for gold, which tends to rise as the US dollar falls, and vice versa.
Trump’s rhetoric in the latter part of the campaign on the dangers of a high US dollar indicates he favours a gradual increase in US rates. Longer term, Trump’s isolationist trade policies, should they come into effect, could further exacerbate currency/trade wars, particularly in Asia, and increase demand for gold as a safe haven.
Australian investors could buy an ASX-quoted Exchanged Traded Fund (ETF) over gold, such as the ANZ ETFS Physical Gold ETF, or stick to Newcrest Mining, Evolution Mining and other quality producers.
Chart 1: ANZ ETFS Physical Gold ETFSource: The Bull
Australian infrastructure stocks with US exposure could also benefit from a Trump Presidency. Trump’s big-spending infrastructure strategy was a key part of his election strategy and he hinted at a “trillion-dollar plan”, although as usual details were scarce.
Of course, infrastructure projects have long lead times, spending programs run over many years and a large increase in infrastructure investment is likelier in economic downturns. The effect on James Hardie Industries and Boral is marginal in the short term – neither rallied on the US election result – but higher US infrastructure spending would be an earnings tailwind in the medium term.
The defence sector should be another winner from a pro-military Trump Presidency. Trump wants to increase military spending to boost troop levels and the number of ships and aircraft. That could benefit small-cap Australian ship builder Austal, which counts the US Navy as a key client. Austal supplies the Littoral Combat Ship for the US Navy.
Austal looks undervalued for long-term investors, regardless of the US election and possible military spending increases. Investors seeking large-cap exposure to higher US military spending should look at offshore-listed stocks Lockheed Martin, Boeing, Northrop Grumman and Raytheon.
Healthcare stocks look like the main losers from Trump’s win. Healthcare was a key political divide between the Democrats and Republicans. Hillary Clinton wanted to preserve and strengthen the controversial US Affordable Care Act, the so-called “Obamacare”. Trump wants to repeal it and replace it with another system.
Australian pathology business Sonic Healthcare earned 22 per cent of its FY16 revenue in the US. A Trump win could be a headwind for US hospitals and medical-service suppliers such as Sonic, given uncertainty around health rebates and funding
However, Sonic looks reasonably valued at the current price, so it would be unwise to sell it based on Trump’s win.
Chart 2: Sonic HealthcareSource: The Bull
CSL could be one of a few long-term Australian healthcare winners from Trump’s victory if the Republicans create free-market drug pricing. However, the powerful US pharmaceutical industry opposes the importation of cheaper prescription drugs and Trump would have to overcome many vested interests for the legislation to be passed.
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Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. The article has been prepared without taking into account your objectives, financial situation or particular needs. Before acting on the information in this article you should consider the appropriateness and accuracy of the information, with regard to your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at November 9, 2016.