The Tokyo stock exchange plunged 5.5% Wednesday morning, with sharp drops also recorded in other Asian markets. The Mexican peso fell 10%, the dollar dropped 3.4% against the yen and 1.7% against the euro, while it jumped against emerging market currencies.
Oil prices dropped by 3%, while gold, the Swiss franc and the yen – safe harbors for investors in stressful times – are all trending upward.
Donald Trump’s U.S. presidential election victory is rocking the world financial markets.
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Analysts predicted a negative reaction to a Trump victory, but neither they nor the markets factored in the possibility seriously because of the inherently optimistic nature of investments.
In their desire to make money, most investors believe things will happen that will benefit them; there are very few contrarian investors.
Although there is no correlation between the initial market reactions and what will happen in the months that follow, it’s reasonable to expect after shocks. There are five reasons for this:
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1. Trump is unpredictable and inconsistent, and investors hate uncertainty;
2. Trump’s economic policy isn’t entirely clear, and what he has proposed so far would considerably increase the United States’ national debt, among other things;
3. Trump’s rhetoric during the campaign was very isolationist and anti-global. Trade disputes with China and other countries will cause damage to the multinational corporations that trade on the markets, and also cause currency shocks;
4. Shocks and volatility are profitable only for the most daring risk takers. For everyone else, pension accounts are going to take a serious hit.
5. Analysts say the sectors most likely to profit from a Trump presidency are the oil and coal industries, and indirectly the pharmaceutical industry, since his rival, Hillary Clinton, had threatened to subject drugs to price controls. But right now, oil stocks are falling sharply and there’s no relief rally in sight.