Colin McLean: How should investors react to political change in the US?

Trump is an immediate negative for some countries that are close trading partners; Mexico, Canada and China. But a clear immediate winner while uncertainty remains is gold. Losers include the US Dollar, Mexican Peso, oil and climate change. Since 1948, the Dow Jones Index has typically fallen under a Republican presidency. But if Trump's presidency echoes Reagan's leadership, markets may come to respect the new leader and his policies.

The US corporate earnings background is favourable, with an earnings season that is currently beating expectations. Indeed, earnings growth in US companies should accelerate next year. And with the election over, US investors should look more at individual company results. This would see the market favour sectors such as banks and technology that have been beating earnings expectations.

Trump's presidency looks set to break from the traditional Republican commitment to free trade, with more protectionist policies. And much of his comment on change he plans for military commitments, represents a sea-change in America's global role. This is less supportive for global trade and emerging economies. He has promised to "renegotiate" the North American Free Trade Agreement with Canada and Mexico, and cancel participation in the Tran-Pacific Partnership. That may ease some of the competitive forces that have restricted real wage growth. Globalisation has been a trend for decades, boosting growth around the world, but not raising average real living standards. Although trade agreements are blamed for that, technological change and lack of productive new capital investment are also part of the continued disinflation around the world.

One sector that feared Clinton and should now rally is healthcare. The major UK pharmaceuticals are exposed to the US market which was threatened by Clinton’s proposed pricing reforms. This year the sector has lost much of its premium rating. But Trump has said he will repeal Obamacare, and the sector may be helped by his new plans.

Both candidates favoured increased infrastructure spending, promising to inject hundreds of billions of dollars in fiscal stimulus. This could raise US economic growth over the longer term, but the benefit may depend on how the work is financed. Trump has indicated that the cost will be met from reduced climate change spending. There are London-listed businesses that could benefit from US infrastructure and construction, such as CRH, Ashtead and Wolseley.

Trump stood between an accelerating US economy and Federal Reserve intervention. The Fed saw a risk that a Trump presidency might have cooled the economy and inflation trend. Even so, it seems unlikely that the Fed will delay beyond December in raising interest rates. Average hourly earnings for private-sector employees were up 2.8% year-on-year in October, the fastest pace in seven years. Next year US output is forecast to grow 3.1%, the strongest in more than two years. Unemployment is low, at 4.9%. But the elephant in the room is that, since 2008, the US has added significantly to its national debt, an extra US$ 15 trillion. Trump is seen as being comfortable with borrowing money.

After the US, investors may focus on the Italian Referendum, where polls currently point to a NO vote. Trump looks like part of an ongoing change in politics. In Europe, it is clear that the social and political consensus that has prevailed in the West for 60 years is under attack. Markets may take a few months to assess winners and losers in the new world order, but the US and world economy start from a position of growth.

(SVM and its clients hold positions in CRH, Ashtead and Wolseley)

Colin McLean is managing director of SVM Asset Management