Trump is the principal threat to investor portfolios
President Trump represents the biggest risk for regular investors across the globe, even more so than the threat of a possible recession in China.
That said, there are also some very significant opportunities for savvy investors, as Trump triggered global market sell-offs last week ahead of his first foreign trip as President.
Indeed, the fact that Mr Trump arranged a 110 billion dollar arms deal with Saudi Arabia on Saturday is being hailed as a boost for American jobs; his more appeasing and statesmanlike air towards Muslim leaders is being praised; along with his much closer working relationship with the president of China, Xi Jinping. Does this perhaps reveal that the President is – at last – appreciating the value and significance of good foreign relations?
However, on domestic soil, Mr Trump remains under siege following a number of scandals, including the fact he may have tried to get the recently fired FBI director, James Comey to conclude an investigation into former national security adviser, Michael Flynn, as well as possible Russian interference in the U.S. election.
As such, against this background of recent events, the President and his administration is the biggest threat to investors’ portfolios in the short term, for four main reasons, as I was quoted as saying by Newsmax, IFA Magazine, Fintech Finance, Wealth Management and Newsline.
First, the continuing scandals could easily distract the Trump administration from the agenda of tax cuts, deregulation, infrastructure spending and other pro-business measures, which would hopefully be beneficial to investors.
Second, although the President is now perhaps less of a geopolitical risk than at the beginning of his term, his administration remains tumultuous and unpredictable. And as history has taught us, financial markets dislike uncertainty. This was highlighted with last week’s panicked sell-offs.
There are growing calls for impeachment, and the risk of this has significantly increased since the announcement of a special prosecutor being appointed to investigate his alleged Russian links. Naturally, this is generating uncertainty.
Whilst these waves of turbulence could just be a ‘bump in the road’, investors can often be tempted to overreact, which could result in disastrous consequences for their portfolios. It’s crucial for investors to focus on longer-term horizons in order to achieve optimum results, as stock markets tend to go up over time, but recognise there will be highs and lows along the road.
The unparalleled media circus surrounding Trump heightens the situation, which could lead investors to have a knee-jerk reaction that could be extremely negative.
Third, and because of such media scrutiny, investors could miss other important geopolitical and economic risks that could affect markets and, as such, returns. These include the downturn in China’s credit impulse that could generate an important hindrance on the country’s growth in the short term. Of course, this could have grave and far-reaching consequences – however few people are as interested in this, or other key risks, as they are in Mr Trump.
Finally, fourth, it could be reasonably assumed that a market correction is needed and that Trump and the associated scandals following him could act as the catalyst.
Indeed, as the CEO of the world’s biggest economy, the U.S. president’s actions and policies will always have an effect on the markets, and, as such, investors’ returns. Consequently, Mr Trump’s unpredictability, the scandals around him and the media’s obsession and amplification of them, create a unique set of circumstances.
President Trump is creating volatility and is more than likely going to continue doing so. However, whilst this can pose a genuine threat to those who may be unprepared, complacent or who have a tendency to overreact, volatility is good for markets and shrewd investors, as it creates significant investment opportunities.