Despite the hype around the widely-publicised build-up to the US election, numerous analysts and high-profile investors are downplaying the impact of the election outcome on global markets.
Speaking on whether he thinks the ripple effects will be large enough to impact global growth forecasts, Dr Larry Hatheway, chief economist and co-founder of Jackson Hole Economics, says: “A period of prolonged volatility, and perhaps some shake out of global capital markets would have some impact on economic activity. But if the period of uncertainty and the potential of market volatility is contained, then it need not have longer-term economic effects.”
Hatheway was speaking at the most recent PSG Think Big webinar hosted by award-winning journalist, Alishia Seckam on the US election race and what it may mean for global and emerging markets. He said that anxieties that surround the impact of the US election centre around the fact that there will likely be a very close, contested election. “We’ll also potentially see lots of litigation, and possibly even some violence or ‘non normal’ behavior amongst the electorate and politicians.”
He believes this could linger well into December with the outcome of the vote only being certified on 16 December. “Uncertainty is typically the enemy of markets, so it would not surprise me if we saw some volatility, particularly given how rosy market conditions have been in the run-up to the election.”
So where does this leave emerging markets and South Africa? According to Hatheway, this has always been Donald Trump’s election to lose, which has ramifications for developing economies like ours.
Emerging markets are intrinsically tied to the fortunes and fallouts of the global economy and are therefore extremely sensitive to dollar prices, interest rates and global growth. According to Hatheway, the tough period experienced by emerging markets over the last decade due to the commodity slowdown has the propensity to linger, especially in the scenario of a Trump victory.
Under a Trump presidency, he says that – apart from the extensive domestic tax cuts which would likely play out in a Trump “clean sweep” scenario – we will likely see an increasing trend of on- and near-shoring coupled with broad-based trade tariffs. “Additionally, expenditure and government deficit will likely increase.”
All of this spells a more hawkish policy environment, which would likely reignite inflation. “Although I think the Fed will continue to ease, the larger deficits would probably slow their approach. One of the paradoxes of the Trump policy is that it would probably lead to a stronger dollar simply because of the higher interest rate environment,” says Hatheway.
“While this may spark a better US growth environment, Trump’s domestic, foreign and trade policies as well as ongoing geopolitical tensions could spell hardship, particularly for emerging economies.”
Nevertheless, Hatheway believes that there are opportunities for emerging markets. With the onset of deglobalisation, he says that there has been a transference of trade opportunities in some cases. “As an example, with the move away from China as the leading global manufacturing source, we have seen two markets picking up those pieces, namely Vietnam and Mexico. And it may be that other countries could follow that route.”
For investors focusing offshore, there will also be clear winners and losers in terms of US sectors. Hatheway says that in a Trump presidency, especially in a clean sweep scenario where Republicans have a Senate and House majority, deregulation measures will create three clear beneficiaries, namely traditional energy, pharmaceutical, and financial services sectors. Under a Harris administration, there will be continued support for sectors like alternative energy, driven by policies such as the Inflation Reduction Act, which promotes electrification, EV adoption, and solar panel use.