INTRODUCTION
The US presidential election saw the victory of Donald Trump, raising questions about the impact his return as head of state will have on the global economy and investment markets.
What does this change mean for Czech investors, and how can the equity funds and ETFs we invest in adapt to the new reality? Let's take a look at the main aspects that may affect the markets in the coming months.
TRUMP'S ECONOMIC POLICY AND STOCK MARKETS
Donald Trump is known for his pro-trade approach, tax cuts and policies aimed at supporting domestic industry. His presidency from 2017-2021 was characterised by a rise in the US stock market, partly due to tax reforms and deregulation in the financial sector and the energy and industrial sectors. If Donald Trump continues this strategy, we can expect to see a rise in major stock indices such as the S&P 500 and the NASDAQ 100.
This development may be positive for investors who are invested in US equity funds and ETFs. Increased support for domestic companies could be expected to lead to outperformance in certain sectors, including energy, industrials and financials.
The evolution of the S&P 500 and NASDAQ 100 indices under the Trump administration 2017-2021
S&P 500 over the period January 2017-January 2021
The charts above show that under Trump's last administration, these indices did well. The S&P 500 index has achieved a total appreciation of around 67%, and the NASDAQ 100 index has reached around 100%. Only towards the end of 2018 did the indices experience more significant declines, mainly due to the severe cooling of trade between the US and China and in 2020 due to the global pandemic Covid.19 However, in both cases there was a gradual rise above the pre-downturn value.
POTENTIAL RISKS AND MARKET VOLATILITY
On the other hand, a Donald Trump victory may bring higher geopolitical risks and market volatility. Trump's tough trade rhetoric towards China and his uncompromising stance on global agreements may create uncertainty. For investors, this means that while we can expect equity markets to rise, the risk of sudden fluctuations should be factored into investment strategies.
At Melior Invest, we monitor these trending developments and tailor our investment recommendations to ensure that our clients' portfolios are optimized for both growth and protection from increased volatility.
IMPLICATIONS FOR CURRENCY MARKETS
Trump's policy actions may have an impact on currency markets, with expected changes potentially affecting the US dollar against other currencies, including the Czech koruna. Historically, his policies have been associated with fluctuations in foreign exchange markets, which may be important for Czech investors monitoring the CZK/USD exchange rate.
US Dollar/Czech Koruna exchange rate in August-November 2024
For investment funds, this means that USD funds can be more advantageous when the dollar is expected to strengthen, as they offer the potential for appreciation not only from the growth of the investment itself, but also from the gains from the exchange rate differential. To reduce currency risk, it is advisable to have funds denominated in different currencies in the portfolio, which helps to offset the impact of exchange rate fluctuations on the overall appreciation of the investments.
IMPACT ON THE CZECH ECONOMY AND GLOBAL MARKETS
Changes in US economic policy may also have an indirect impact on the Czech economy. For example, the growth of US markets may boost global demand for exports, which could also have a positive effect on European and Czech industrial sectors. On the other hand, increased geopolitical tensions and possible trade "wars" may have negative consequences, especially for export-oriented companies.
HOW TO REACT TO THE NEW SITUATION?
It is still important for you to maintain a diversified portfolio that includes not only U.S. equities but also other asset classes that can offer stability during periods of heightened volatility. Investing in dividend stocks and global ETFs can be a way to protect yourself from sudden market swings. At Melior Invest, we make sure that your investments are protected and prepared for all possible scenarios the market may bring.
