Consensus underestimates the damage President Trump could inflict on the US economy, the head of Hermes Investment Management has warned.
Donald Trump has defied the odds to become the next US president, an outcome that initially pummelled financial markets which had broadly been positioned for a Clinton victory.
Chief executive of Hermes, Saker Nusseibeh, is confident the markets will shrug off the results after an initial stutter, due to the similarly themed policy pitches from both presidential candidates.
But his fear resides in the long-term impact of the outcome, pointing to the prospect of Trump alienating nations through his foreign policy.
“The assumption is that Trump will listen to advice from professionals in the US State Department when dealing with foreign affairs, but on the campaign trail he demonstrated a clear willingness to dismiss professional advice, to the delight of his support base.
“Once again it is not a stretch to imagine Trump in talking to his home constituency might alienate the traditionally supportive Gulf nations with his Islamophobic comments.”
Mr Nusseibeh said this might then strengthen Iran’s influence in the region, which could threaten regional stability and therefore the oil price.
The Hermes boss also said governments rely on their reputation as a measure of trustworthiness in order to reduce their risk premium in capital markets.
“Given Trump’s unusual campaign, it is not a stretch to imagine him repeating his campaign talk of renegotiating US debt.
“Although everyone knows such an outcome is highly improbable, a president mentioning the idea might lead to serious volatility in US Treasury markets and an increase in the risk premium for US assets.”
According to Neil Williams, chief economist at Hermes, the markets will be on the back foot after Trump’s victory, given the potential his win could disrupt financial assets, macro-economics, and trade policy.
“With some of his trade and immigration proposals looking extreme, though, he will doubtless have to water them down to get past a Congress that was losing faith in his candidacy.”
Mr Williams said a fresh bout of volatility will now blur the path for US interest rates, but said this still doesn’t point to an aggressive Federal Reserve.
“The short-term stimulus from Trump’s sizeable fiscal expansion should be muted by his threat of widespread protectionism, and the possibility of a hit to US asset prices.”
Douglas McWilliams, president for the Centre for Economics and Business Research, argued many will be worse off as a result of the vote, with the economy “decisively so” as a result of less immigration and reduced trade.
The markets have been marked down, which Mr McWilliams said is a logical response to fears of less growth from trade wars.
He said the UK could probably gain from Trump, while Japan and Korea clearly lose out, as does much of Latin American and the Arab world.
