President Trump: What Should You Do?

Donald Trump has beaten Hillary Clinton to become the 45th US President. Stock markets globally have reacted by falling - what should investors do?

Emma Wall 9 November, 2016 | 10:22AM
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Emma Wall: Hello, and welcome to the Morningstar series, "Market Reaction." I'm Emma Wall and here today to talk about the U.S. election is Dan Kemp of Morningstar Investment Management.

Hi, Dan.

Dan Kemp: Good morning, Emma.

Wall: So, it looks today as if Trump will be the next President of the United States. How have markets across the globe reacted to this news?

Kemp: Well, the first thing to say, of course, it's still very early days and so we are living through these initial reactions. But I think it's fair to say that the initial reaction was not good. It was most pronounced in Asia because of course, those were the markets that were open at that time and we saw some very steep falls in asset prices there.

And that's started to creep through into Europe, but it's now a much more nuanced mixed reaction. We could expect to see that with the news flow over the next days, weeks and months. But of course, the important thing from an investment perspective is to look through that and focus on the long term.

Wall: So, what can investors outside of the U.S. do with this news then?

Kemp: Well, the first thing is to avoid making the classic mistakes of investors’ and that's either to be pulled along by the herd and as prices are falling, decide to sell, or secondly, to try and capture a bounce in markets.

Both of these strategies are essentially gambling. We have no idea what markets are going to do in the short term. Certainly, people didn't expect this sort of reaction when they went to bed last night and the U.S. equity markets had actually risen yesterday.

So, we can't anticipate what's going to happen over the next few days. What we can do is look at genuine value opportunities, some of which have become cheaper and will become cheaper over the next days, weeks and months. And use that opportunity to add to these long-term positions.

Wall: And it is a very important point to make that we are in early days because although Trump has declared, Hillary has not conceded to that. And even if we are going to have a Trump President, we're not going to have a Trump President until January. So, the markets have all that time plus any policies he puts in after that to react to all of this noise.

Kemp: Exactly. And so, investors are going to have plenty of opportunities to buy cheap assets. And even if you are looking at assets today and they look cheaper than they were yesterday, then just remember, they can get much cheaper. Markets can be pushed to extremes and so you might want to add to positions you like today, but leave some powder dry to keep adding in the future as news drives markets into unforeseen places.

Wall: And it also is worth remembering that if you don't have high conviction over any asset class at the moment, because let's be honest, we're in a slow-growth, low-growth world, it's okay to just do nothing, isn't it?

Kemp: Absolutely right. That should always be the default position. You should like the positions you had today as much you liked them yesterday. And so, there's no need to react. That's always the first temptation for investors that they think it's better to do something rather than nothing. Very often it's better to do nothing and just keep doing the research, keep looking at great source of news and data and work out where genuine opportunities are occurring.

Wall: Dan, thank you very much.

Kemp: You're welcome.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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