UK
“The UK stock market could be heavily influenced by the outcome of the US presidential election. Many of its constituents do business in the US or have their products or services priced in US dollars.”
Potential winners
“Both Trump and Clinton are pro-infrastructure spending and have pledged to inject hundreds of billions of dollars in fiscal stimulus if they win the election. UK firms that could benefit from this are Wolseley, National Grid, Hill & Smith, Ashtead and CRH.
“Similarly, both nominees want to raise the military spending cap, thereby creating a bigger defence budget. Potential beneficiaries in the UK would be BAE Systems, Meggitt and Ultra Electronics.”
Trump victory
“Trump wants to restart all the coal mines, pump as much oil as possible and have plentiful gas flowing through pipelines. This would be good for oil and gas service companies and engineers in the short to medium-term, but bad for commodity prices. Investors could consider suppliers of kit such as pumps and values to the US shale gas and oil operators as that industry looks to be a clear beneficiary of Trump’s policies. Firms to look at are Hunting, Wood Group and Weir.
“Private security firms and prison operators could be asked to assist with immigration policy changes so G4S could be a beneficiary there.
“Drug stocks will potentially rally if Trump is elected – purely because Clinton’s price cap strategy is no longer a threat. GlaxoSmithKline, AstraZeneca, Worldwide Healthcare Trust and Biotech Growth Trust could all see a boost there.”
Clinton victory
“Obvious winners are less clear, with many believing there will be less impact from a Clinton victory. From a macro perspective, consumer discretionary stocks such as those in the retail sector could benefit. Clinton wants to push up the minimum wage. While that would increase retailers’ wage bills, it could also put more money into the large number of people who work for retail businesses. They would, theoretically, have more money to spend in the shops – thereby helping to drive the economy.”
Potential losers
“The healthcare sector stands to suffer the most if Clinton wins following her comments about price controls in the sector. The US spends just over 17% of its GDP on healthcare, so this is also a key issue for voters.
“UK stocks most at risk of falling upon a Clinton win are Shire and AstraZeneca which have the biggest exposure to the US out of the FTSE’s blue chip drug companies.”
US
“Many UK investors will also have holdings in the US market, where a more direct impact might be felt.
“History shows that on average the US stock market has risen by 5.8% in the first year of a new presidential term but there is a significant disparity depending on whether the new president is a Republican or Democrat. On average the Dow Jones has risen by 13.2% in the first year of a new Democrat president, whereas during the first year of a new Republican president it has fallen by 1.2% (see table 1 below).
“This picture is even starker when a Republican replaces a Democrat as president with an average fall in the Dow Jones of 8.8%:
Election year | Republican winner | Dow Jones performance in first year of office after switch to Republicans |
1952 | Dwight D. Eisenhower | -3.8% |
1968 | Richard M. Nixon | -15.2% |
1980 | Ronald Reagan | -9.2% |
2000 | George W. Bush | -7.1% |
Source: Thomson Reuters Datastream
“This suggests a victory for Trump could see a short term down turn in US stocks and this could represent a buying opportunity for UK investors, especially if a sudden retreat in the benchmark S&P 500 index were to deter the US Federal Reserve from pushing through a widely-anticipated interest rate increase on 14 December – the central bank has previously cited financial market volatility to justify inaction at several other policy-setting meetings in 2016.
“UK funds that have a large proportion of US equities in their portfolio could be a good way of benefiting from any short term volatility. Good examples include BlackRock North American Equity Tracker and CF Miton US Opportunities.”