US election through Aussie eyes
By Manuel Greenland, Senior Portfolio Manager, Australia
06 October, 2016
Should Australian investors care that the Mexican peso weakened significantly versus the US dollar over September? The short answer is yes, because Mexico’s currency weakens as Donald Trump’s chance of winning the upcoming US election improves. So this one currency exchange rate reflects the probability of a Trump win, which is relevant for all investors.
Trump’s weakness and greatest strength are one in the same; he is the candidate from outside the political establishment. If he wins, the ensuing uncertainty is likely to drive immediate weakness in financial markets. Both Australian shares and the Australian dollar are likely to prove among the more vulnerable of developed market financial assets to a short term sell off.
The medium term impact on Australia is likely to be more muted. Trump has promised to protect the US from cheap imports, but Australia exports relatively little to the United States. Australia produces key raw materials at the most globally competitive prices, so anyone wanting to manufacture finished goods would probably need to buy materials from Australia. Trump has indicated he would spend more to drive growth, so demand for Australian commodities could well enjoy an unexpected boost, as could sales of Aussie companies operating in the US construction market like Reliance Worldwide.
Trump has also promised to repeal Obama’s Healthcare reform, which in improving healthcare access generally drove up sales volumes and lowered prices. Some Australian companies like Sonic Healthcare have benefited from increased volumes on wider healthcare access, while others like CSL have suffered from greater levels of regulated pricing. So the impact for Australia would likely be mixed.
While the outcome of the race for the world’s top political job grabs headlines, and will probably drive some short term market volatility, the medium term effects for Australia appear less dramatic; except perhaps for anyone hoping to immigrate to the US should its border close!