Trump draws closer: what should investors do?
The next Republican presidential nominee is likely to be Donald Trump, and he may very well become the next U.S. President too. This could spell challenging times for Europe. Investors should accordingly position themselves: “U.S. companies are likely to be among the winners, making the U.S. stock market attractive”, says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “The United States has emerged from past crises stronger than Europe, widening the gap.”
The U.S. economy is expected to experience a soft landing in the coming weeks, skipping the widely predicted crisis. Again, this demonstrates the resilience and flexibility of the U.S. economy, especially compared to Europe. While the U.S. has emerged stronger from each past crisis, the old world is falling behind. When the euro was introduced 25 years ago, the U.S. economy’s output – measured in purchasing power parity – was about a tenth larger than that of the Eurozone. This lead has now grown to 30 percent.
Not only in terms of economic output but also in stock market capitalization, the U.S. has outpaced Europe. “This indicates that U.S. companies are also credited with better future prospects”, Gerlinger explains. This is no surprise given locational advantages such as cheaper energy, high-tech dominance, and a more business-friendly regulatory environment.
If Donald Trump is elected U.S. President in November, the outlook for Europe is likely to darken further. On one hand, Trump could scale back military support for Europe and Ukraine, leading to higher costs for European nations. At the same time, he is likely to pursue his “America First” policy, which could reignite trade disputes between Washington and Brussels. “If Trump wins the election, he will continue his policies where he left off four years ago”, Gerlinger states. “This means less multilateralism, deglobalization, and perhaps even an outright trade war with Europe.”
European politics is thus already preparing for Trump. Investors should do the same. “U.S. companies and their stocks are likely to benefit more from a robust American foreign and economic policy than European stocks”, Gerlinger explains. The U.S. could capitalize on its advantages, including the freedom to incur debt at relatively low interest rates. “European politics”, Gerlinger notes, “is rife with a lack of ideas, coupled with empty coffers.”
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