Trump Presidency — Will Markets Draw Parallels to The Brexit?

On August 18, 2016, Donald J. Trump tweeted, “They will soon be calling me Mr. Brexit.”

Markets may agree.

The uncertainty of November 8 vote may impact markets similar to the EU Referendum, which resulted in the Brexit.

The vote to leave the EU went against most economists’ perpetual warnings of a Brexit. The former British Prime Minister, David Cameron, Bank of England and HM Treasury had repeatedly warned Britons that Brexit would raise global economic concerns for the UK.

But the unanticipated Brexit result sent markets in a flurry. Loss of confidence sent the pound to its lowest levels since 1985, London equity markets to turmoil and many even moved businesses out of the UK due to uncertainties.

Markets often react positively to an assured outcome but uncertainty can lead to extreme market fluctuations which may occur if markets perceive the event as ‘negative’.

The 2016 US Presidential Elections may create a similar environment. In a rally in Ambridge, Pennsylvania on Monday, Republican Presidential Nominee Donald J. Trump said: “This is like Brexit, folks, you watch.”

Markets behave positively or negatively on how they comprehend these results. But the 2016 US voters may have some tough choices.

The 2016 US Presidential nominees have been termed as the “most disliked candidates” according to a study published in the journal Social Cognition. But the unpopularity may not be as much of a problem for markets as the impact the elected candidate would have.

The underlying reason for electing the next President may impact global markets through geopolitics and implemented policies. The main reasons for a Brexit vote included immigration and national identity.

On a Brexit vote, the real estate mogul had tweeted, “They took their country back, just like we will take America back. No games!” His stance on issues of immigration may draw some similarities to the reasons for the Brexit. He said, “Come November, the American people will have the chance to re-declare their independence. Americans will have a chance to vote for trade, immigration and foreign policies that put our citizens first.”

In a column for The New York Times, Prof. Robert Shiller wrote,

“Leaders today often do not openly declare themselves to be ethnic nationalists — in which identity is defined by perceived genetic, religious or linguistic heritage rather than democratic ideals or principles.”

Trump presidency may be looked at as a Brexit vote which was perceived as a ‘negative outcome’ by global markets. US relations would be vague with countries like China and Mexico. Trump has repeatedly blamed them for issues like currency manipulation, building a wall and driving out the undocumented immigrants (that may adversely reduce output from somewhere between $381.5 billion to $623.2 billion).

While there will always be sectors that may do well under Trump’s Presidency, global investments and international relations may be severely impacted. According to USA Today, economist Lee Branstetter, with Carnegie Mellon University in Pittsburgh and the Peterson Institute for International economics in Washington said,

Trumpanomics’ would be Brexit on steroids, and the economic consequences would be far more dramatic.

He added, “Trump is advocating a far more complete repudiation of globalization than Brexit.”

The Democratic Presidential Nominee, Hillary Clinton, on the other hand, is seen more positive for the stocks. According to CNBC, “it would represent continuation of the status quo.”

A version of this post is published on TheStreet