Geoffrey Yu, Head of the UK Investment Office, UBS Wealth Management

 

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With Donald Trump now officially sworn in as the 45th president of the United States, investors and wealth managers alike must begin to take what he says seriously.

Following a year that confounded the press, political pundits, and financial markets, we’re becoming attuned to expecting the unexpected. But, by definition, this means that there may be more surprises along the way, and surprises, of course, can spell volatility.

On the international front, President Trump’s approach towards trading partners, particularly in Europe and China, has the greatest potential impact upon investment strategies. The main concern for markets is how the President approaches his campaign promise to “make America great again”. The question on every investor’s mind is to what extent this nationalism will be pursued at the cost of other countries?

Should President Trump adopt a protectionist stance, it wouldn’t just be the equity markets which would feel the force, but also currencies worldwide. Portfolios would have to be adjusted accordingly. The dollar’s position relative to emerging market currencies is particularly idiosyncratic, as we have seen with the USD/MXN trading off the President’s tweets, and the peso wasn’t helped by his inauguration speech either. Never has Twitter been so closely watched by investors and strategists alike.

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For wealth managers, changes to the regulatory landscape could have the greatest impact, with scope for regulatory arbitrage. Trade protectionism could be extended into market access protectionism, thereby threatening the pool of assets which can be invested in. Should globalisation be pared back, asset allocation will require re-orientation.

However, given the continued uncertainty around which policies Trump will pursue – and will be able to pursue – it is too early to say with confidence how the industry will be affected. Such considerations largely remain well into the future.

For now, all eyes are on trade, which remains the President’s focus as he enters the White House. The potentially punitive or taxing US trade policies now lurking on the horizon will likely remain the main source of jitters for wealthy individuals and those working in the financial world for some time to come. We hope America First does not come at the expense of others, but is rather a rising tide which lifts all boats.