Analysis |

Five Reasons Why World Markets Are Plunging After Donald Trump Stunner

Most investors believe things will happen that only benefit them – so they failed to take possibility of a Donald Trump victory seriously.

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 A man walks in front of an electronic board displaying market indices from around the world, outside a brokerage in Tokyo, Japan, November 9, 2016.
A man walks in front of an electronic board displaying market indices from around the world, outside a brokerage in Tokyo, Japan, November 9, 2016. Credit: Issei Kato/Reuters

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.

Protesters against president-elect Donald Trump march peacefully through Oakland, California, U.S., November 9, 2016. A separate group earlier in the night set fire to garbage bins and smashed multiple windows.
NEW YORK, NY - NOVEMBER 09: Republican president-elect Donald Trump gives a thumbs up to the crowd during his acceptance speech at his election night event at the New York Hilton Midtown in the early morning hours of November 9, 2016 in New York City. Donald Trump defeated Democratic presidential nominee Hillary Clinton to become the 45th president of the United States.
Supporters of President-elect Donald Trump cheer during as they watch election returns during an election night rally, Wednesday, Nov. 9, 2016, in New York.
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Protesters against president-elect Donald Trump march peacefully through Oakland, California, U.S., November 9, 2016.Credit: Noah Berger / Reuters
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Donald Trump gives a thumbs up to the crowd during his acceptance speech at his election night event at the New York Hilton Midtown on November 9, 2016.Credit: Chip Somodevilla / AFP
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Supporters of President-elect Donald Trump cheer during as they watch election returns during an election night rally, Wednesday, Nov. 9, 2016, in New York. Credit: Evan Vucci / AP

In their desire to make money, most investors believe things will happen that will benefit them; there are very few contrarian investors.

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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:

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.

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