What a difference 24 hours can make. Pollsters in the United States are likely to be in turmoil this morning after predicting Clinton victory in the US presidential race. Now that we learnt again, as with Brexit, that the polls cannot be trusted, let’s look back at our views leading up to the announcement. We also consider the best course of action investors should take in the light of the surprising news that Donald Trump has been elected as America’s next president.
On Tuesday, Floris Slabbert told viewers of KykNet’s Die Groot Ontbyt that the JSE broke the 50,000 level. He specifically ascribed this to President Zuma’s failed attempt to prevent the release of the so-called State Capture Report. Interestingly, on 9 November 2015, the JSE traded at 53,371, which is 4.83% lower than the level of 50,304 at the time of the interview. But this week, the spotlight is not focused on South Africa but fixed firmly on developments in America.
In the US, interest rates remained unchanged which contributed to the activity and rise of the NASDAQ. Yet markets remain volatile as the world prepared for the outcome of the US election. Then, this morning, shortly after 9:00 Donald Trump became president-elect of the United States of America. View the full interview below.
Since this morning’s announcement, the rand has fluctuated significantly. As with Brexit earlier this year, we don’t expect the currency volatility last long. In fact, we believe that the currency will strengthen even further in future, despite the diverse opinions about how the Trump presidency will affect local and international markets. It is simply too soon to tell what might happen.
For now, as Floris explained on Tuesday, our universal recommendation to investors is not to panic. As we cautioned in January, now is not the time to convert local investments to offshore portfolios, nor is it to make major changes to existing investments.
Remarkably, those who didn’t heed this advice in January were caught off guard. The rand gained 40% against the British pound and more than 13% against the US dollar since the beginning of the year. We expect a similar scenario to play out in the next few weeks.
So, what should investors consider now?
- Investors who receive interest bearing investment income should bear in mind that local interest rates may be lowered soon. If this happens, it will reduce their investment income. Instead, investors could consider a fixed rate investment with a medium term. This will protect your income from major market movements in the short and medium term.
- As always, consider the impact of cost on your portfolio returns.
- Make sure you are working with a credible investment advisor.
- Consider the impact of tax on your investments.
- Don’t avoid risk altogether. If you take no risk your investment will not outperform inflation. Just be sure to choose wisely and make sure you understand your risk exposure.