The parallels of the UK’s Brexit vote with yesterday’s US presidential elections are obvious, but financial markets have responded rather differently this time. Though Asian markets posted stronger losses, the Euro Stoxx 50 and the FTSE 100 have recovered their losses during the day, and European bond yields have hardly responded either. The S&P 500 even was up 1.1% over the day, probably on the back of expectations that the Fed will now hold off a rate hike, while the index posted a 5.3% drop after the Brexit vote. Gold has been the only asset to move significantly, posting a 2.3% gain while the dollar paired back its losses to other major currencies.
It seems investors plan to sit out the uncertainty created by Trump’s victory, apparently in the hope that some of his more outlandish plans such as repealing trade agreements and deporting immigrants will prove to be mere campaign talk. But policy uncertainty is undoubtedly higher now. Wouldn’t a higher risk premium on risk assets therefore be warranted?
It would, says Tim Peeters, head of securities portfolios at Portolani, a multi-family office in Belgium. “I just bought gold a minute ago,” he told Expert Investor this morning. “Today I can reposition my portfolios with prices at similar levels as at the end of last week,” says Peeters, who is still in the dark why markets haven’t reacted more strongly to Trumps’ victory. “Uncertainty will remain on a higher level than markets anticipated before the election over the coming months. My current overweight to the dollar has become riskier now, so that’s why it makes sense to replace some of these dollars with gold,” he adds.
Bonds are a traditional risk-off asset, but long-term US bond yields have risen in the wake of the election result rather than fallen, as they did after the Brexit vote. A direct reason behind this is probably the unclarity how the president-elect will fund the big tax cuts and the infrastructure spending he has promised, with investors fearing US national debt could accelerate.