IN a year branded by populism and inward policy placement, the US election and the Brexit vote have dispensed a significant blow to globalization. Both events have added to the sense of a rising tide of populism, and also likely to have implications for market perceptions of forthcoming European votes. These include the Italian referendum on constitutional reform; general elections in France, the Netherlands and Germany. So what are the implications for the global markets and investors? Well in both Brexit and the US election results, market reaction was swift, i.e an initial sell-off of in risk assets with a flight to quality followed by a complete reversal and rally. While we felt that the initial response from the world markets was an over-reaction, we still do not believe we have reached price equilibrium. Volatile trading recently has yet again demonstrated the importance of a long-term focus for investors. For example, trading equities at the wrong time on the day of the US election results could have permanently impaired wealth. The new US president to be, Donald Trump, has promised decreased regulation, favorable tax reform, increased fiscal spending, and less congressional gridlock these all should be viewed positively by investors, as a stronger growing US economy benefits the global economy and for Global equities. We think talk of a delay of the expected December rate hike by the US Federal Reserve will occur only if markets went into parabolic shock. This does not look likely now. On the other hand as mentioned, Trump's policies are largely based around fiscal easing though tax cuts and bigger government spending plans. These policies should be inflationary, which reinforces the view that US inflation will move ahead of nominal rates, meaning that real rates, which are negatively correlated with gold, will come under greater pressure. In an inflationary environment, real assets like precious metals, commodities and real estate do well. Added to this, other policy promises like the inspection of all US trade deals, tighter immigration rules and less Fed certainty as Janet Yellen's term expires in 2018, makes Gold in investor's portfolio as an insurance cover. On emerging markets, assets have had a strong year so far, with returns well in double-digit percentage territory and fund flows returning to the region across asset classes. While momentum had weakened a bit in the run up to Election Day, we would not rule out some further pressure on emerging market assets in the days and weeks ahead, especially if US dollar rises significantly. At this point, we do not expect emerging markets to return to a negative growth trajectory, but anticipate more trade-oriented countries to be more at risk from future policy developments than countries that are mainly driven by domestic growth. Bottom line The election outcome should not change the core views driving portfolio positioning. However it may increase uncertainty regarding overall market outlook across risk assets. Investors should remember that global economic data has recently been more robust and market fundamentals do not look that bad. If anything, it is more of a time to stay disciplined with a diversified approach. — The writer is the managing director, head of advisory of SEDCO Capital
