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Institutional Investors: Winners and Losers if Trump Wins

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Today is Super Tuesday, and it seems Donald Trump and Hillary Clinton are the clear benefactors of these delegates. The mudslinging battles for U.S. party nominations are intense as the stakes grow higher. One of the goals of SWFI is to provide high-level insight and intelligence on how political events can impact asset owners, whether they are public pensions, sovereign wealth funds, or endowments. By focusing just on the Republican race for the party nomination, one can see Donald J. Trump, a New York City developer and reality TV star (NBC’s The Apprentice), amassing a pool of delegates, broadly across the United States, except for U.S. Senator Ted Cruz picking up Texas and Oklahoma. The self-funded candidate Trump continues to lead in many polls. From analyzing various financial media, there is some consensus that Trump’s populist appeal and policy uncertainties could provide headwinds for large multi-national companies.

On the fixed income side, U.S. Treasuries would benefit, as uncertainty, especially in global trade and other policies, would cause more foreign institutional investors to flock to safety.

Here are some themes that institutional investors may want to consider in the case of a Trump presidency:

WINNERS

1.) U.S. Stocks with Little International Exposure
Portfolio managers could anticipate a long-term increase in domestic capital expenditures from U.S. producers in the areas of industrial manufacturing. If the U.S. produced more goods and services, employment in the US could increase. However, if the U.S. reversed too many trade flows, the U.S. dollar could become too strong, thus negatively impacting exports. In effect, global trade may slowdown. Japanese and Latin American equities would be greatly impacted if trade flows slowed.

In addition, Trump as a candidate supports lowering the U.S. corporate tax rate and changing in repatriation rules, which would bring more capital back to U.S. shores. This would be a boon for U.S. companies.

2.) The Safe Bet – U.S. Real Estate and Treasuries
Many wealth funds and pensions view U.S. core real estate as a store of value, with an inflation hedge. Cash flowing real estate would most likely be in even higher demand, as institutional investors would want to park more capital in the United States.

On the fixed income side, U.S. Treasuries would benefit, as uncertainty, especially in global trade and other policies, would cause more foreign institutional investors to flock to safety.

DRAW

Quicken China’s Move Toward a Consumption-Based Economy
A Trump administration may expedite China’s transformation into a consumer-based economy by negating and challenging large trade deals with the United States. If trade decreased, it could significantly reduce China’s foreign reserves which are already decreasing at the moment. However, China’s State Administration of Foreign Exchange (SAFE) could counter by depreciating the Renminbi even lower.

LOSERS

1.) Hedge Funds Closing
If Trump were to become U.S. President, more U.S. hedge funds could possibly shutter, some transforming into family offices. Hedge fund owners and managers could be negatively affected by Trump’s tax plan. Trump said to the media back in October 2015 that hedge fund guys are “getting away with murder” by “paying nothing” in taxes. Trump would get rid of carried interest for “speculative partnerships that do not grow businesses or create jobs.”

2.) Big Pharma to Take a Hit
Large pharmaceutical manufacturers might be at risk here as Trump has stated numerous times that he intends to negotiate with drug companies. Medicare is the biggest purchaser of drugs and is prohibited by U.S. law from seeking better prices. Drug companies such as Pfizer, Johnson & Johnson, Novartis, Sanofi-Aventis, GlaxoSmithKline, Merck, Roche, Abbott Laboratories, AstraZeneca, Eli Lilly and Bristol-Myers Squibb would be at risk in their stock prices.

3.) Longer Period of Low Oil Prices
According to the latest government figures, the United States produced an average of 9.43 million barrels a day in 2015. The price of oil would probably remain low, as the Keystone Pipeline would probably go through. Furthermore, the U.S. oil boom would continue to grow, thus negatively impacting the finances of OPEC member nations.

As the U.S. Election Day draws near, institutional investors should anticipate how each final candidate could impact their portfolio.

The views in this article are expressed by Michael Maduell.
Michael Maduell is President of the SWFI.
www.swfinstitute.org

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