In a little less than a month, the world will wake up to a new reality as Americans head to the polls to choose the 58th president of the United States. Although no one can predict the impact of either a Donald Trump or a Hillary Clinton victory on the markets, it’s safe to say there could be significant repercussions for emerging markets – although probably not in the way one might expect.
During a recent trip to the US, I took the opportunity to find out what people in the street think of the candidates Americans have been presented with for their next president. Everyone I spoke to of course had a strong opinion, but what struck me the most was people’s incredulity at how arguably the world’s greatest democracy could end up offering voters the two choices it has – leaving many to believe they’ll be casting their ballot for the lesser of two evils.
Despite Clinton’s sometimes questionable past behaviour, she is a product of the political establishment and there can be little doubt that she’s extremely well prepared to take over the reins from Barack Obama. She has spent years in elected office, including what has been widely regarded as a successful stint as Secretary of State. Trump, on the other hand, is one of very few candidates in the history of the US presidential race never to have been elected to public office.
A matter of no small concern is that the incumbent of the Oval Office is the person whose fingers are on the nuclear button. Trump has been exposed – throughout his campaign but especially during the first presidential debate – as being erratic, temperamental and unpredictable. Is this really the type of person we want in control of the launch codes for nuclear weapons? Despite her faults, I believe most Americans would be more comfortable with Clinton in this role.
How are the markets likely to react to either Clinton or Trump at the helm? Markets are often believed to respond more favourably to a Republican president, but with this election, I believe the opposite will hold true. Trump as president will result in exactly what the markets don’t like: uncertainty. Despite his strong business background, he remains a wild card, and his isolationist trade policies (if one can call them that) don’t bode well for either international relations or global markets.
Seen purely from a currency perspective, a Trump presidency could well boost emerging market currencies such as the rand, since his election is likely to have a negative impact on the dollar. But his trade stance and protectionist views and the uncertainty this will create globally will certainly not be beneficial to developing markets – which are currently on the verge of a growth resurgence.
A Clinton presidency is likely to lead to a stronger US economy and a more positive market reaction. Clinton is a known entity, more predictable and is seen as a safer bet to provide the stability and certainty that markets favour. If Trump were to win, however, several economists have warned of a weakened US equities market, which will agitate markets worldwide. In the face of global market volatility, investors may well choose to abandon emerging markets such as South Africa in favour of less ‘risky’ markets in the developed world. Markets in turmoil tend to support the gold price, however, as investors rush to seek safer assets – as we saw in the aftermath of Brexit.
Following a disastrous past week for the Republican presidential nominee, including a potentially mortal wound inflicted on his campaign by the release of the ‘Trump tape’, it looks increasingly unlikely that Trump will be the next US president. Clinton has been one step ahead of her rival for most of the presidential race, and most observers and media outlets declared the former First Lady the winner of both presidential debates.
Trump is still hanging on like a tenacious bulldog, however, and has shown no indication of going down without a tremendous fight. This race is not yet over, despite what the polls might suggest. One must remember that polls and predictions can be notoriously wrong, as we saw with Britain’s shock decision to leave the European Union. As it did with Brexit, the unthinkable may yet become reality in the US presidential election.
