14Nov

We now know that Donald Trump will become President of the United States, and de facto leader of the free world, in January 2017. The financial markets initially reacted with shock to the election result, so what might his election mean for the UK financial system?

Mr Trump undoubtedly conducted a divisive and outspoken campaign. A key part of his strategy was to suggest he will withdraw from, or seek to amend, a number of the US’s existing free trade deals. A closer examination of his beliefs though suggests that US-UK trade could be boosted by Mr Trump’s election. Mr Trump appears to believe that the US has been constrained by entering to trade agreements with poorer countries, such as Mexico, while he has spoken positively about his wish to do deals with the UK – this country will of course need to negotiate its own trade deal with the US and other major economies now that we are to exit the European Union. Mr Trump is a well-known Anglophile, with a Scottish mother and a number of investments in the UK.

Contrast this with the comments of current President Barack Obama that the UK was at the “back of the queue” when it came to negotiating a post-Brexit trade deal.

Economic research consultancy Capital Economics did not see the need to revise its growth forecasts for the UK economy following the vote – it still expects growth of 1.5% in 2017 and 2.5% in 2018.

Certainly, although the FTSE 100, Dow Jones Index and other major stock market indices fell sharply when trading opened the day after the result, their values recovered significantly later the same day, helped no doubt by the conciliatory tone Mr Trump adopted in his acceptance speech. The Dow then reached a record high two days after the result.

A poll by market research agency Opinium prior to the election revealed that four out of five UK financial advisers believed investment values would be adversely affected by a Trump victory, but so far at least this has not materialised. While there may still be some short-term volatility in the weeks and months to come, few analysts are suggesting that US stocks have now become a much more risky area in which to invest.

Michelle McGrade, chief investment officer at TD Direct Investing, said:

“While it is good to review your portfolio at these times of heightened volatility, it is important not to make any rash decisions.

“When markets fall they usually represents opportunities to buy not sell. And though this may be a shock, there is time to think and plan.

“The market volatility following Trump’s victory will lead to short-term trading opportunities so it will be worthwhile having some cash available to make the most of these; should this fit with your investment strategy.

“But the longer-term investor should hold their nerve and see how the dust settles.”

Any legislation Trump proposes will need to be approved by Congress, including anything which could have a negative impact on financial markets in the future. Although Trump was the Republican candidate, and the Republican Party now has a majority in both the Senate and the House of Representatives, many within the party are not entirely supportive of his agenda, and so Congress could still act as an important ‘revising chamber’ for some of his more daring proposals.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.