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Imperative for investors to remain calm on Trump's victory: Bank of Singapore
INVESTORS should stay calm and not panic sell on news that American tycoon and reality TV star Donald Trump will be the 45th US president.
At the same time, it is too early to aggressively add risk, James Cheo, investment strategist at Bank of Singapore, said on Thursday.
While a Trump presidency carries higher market uncertainty as his policies are more unpredictable and hence, unsettling for markets, Mr Cheo said: "Given the difficulty and lags in translating policy rhetoric into implemented legislation, we are careful at this juncture not to extrapolate the election outcome into longer-term financial market implications."
Historically, US equities are volatile on the day after US presidential elections. The S&P 500 sank 5 per cent after Barack Obama beat John McCain in 2008, but gained in the ensuing 12 months.
"Moves in stocks after the day of the US elections say little about the longer term. Hence, it's too early to extrapolate longer-term equity returns,'' Mr Cheo said, while noting that this latest was no ordinary election.
He expects uncertainty to continue weighing on corporate behaviour. Without any clear policy direction, capital spending will also remain uninspiring and many companies may shy away from giving long-term guidance.
His investment strategy advice is for investors to de-risk further but not panic sell.
"At this juncture, we want to de-risk further as markets assess the increased uncertainty associated with a Trump presidency. In this regard, we want to reduce our exposure to emerging market high-yield bonds and Asian equities evenly by one per cent each, and raise our cash holdings by 2 per cent. With this change, we are now underweight in equities across all major regions - the US, Europe, Japan and Asia.
"Our cash overweight will give us the flexibility as we get more clarity from Trump's policies. However, in the meanwhile, we urge investors to stay defensive but not panic sell. We would be sceptical about buying on the dip now. Equity valuations at this juncture do not look compelling and have scope to revert closer to their average.
"Additionally, portfolio diversifiers such as gold, Japanese yen and Swiss franc can help investors tide through this period of short-term uncertainty.''