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With President Trump, 2016 saved its biggest political shock for last.
November 10, 2016Article by Ray Withers
The outcome that many expected would have represented stability and continuity at the close of a year defined by upheaval. Instead, the election of Donald Trump to the American Presidency appears to herald a violent break with current US policy on trade, diplomacy, immigration, and just about everything else. That means it could have profound repercussions not just for the US, but the whole world. Yet early signals, especially in the markets, are showing little cause for alarm.
Equity and bond markets took a brisk plunge Wednesday morning before rebounding rapidly in response to Trump’s magnanimous victory speech and the prospect of a tax-slashing Republican government. Market panic has largely dissipated as investors begin to spy opportunities in this monumental political change, although economists continue to scrutinise the implications of Trump’s platform on trade and a possible shakeup of the Fed.
As the initial shockwaves slow to more manageable ripples, we’d like to share our perspective on what this means for the property market.
Real estate has a much thicker skin than financial markets when it comes to politics, so we see no reason to fear significant fluctuations in American house prices whether the market rally continues or falters in the coming months.
Longer term changes are harder to predict, but we advise most caution in countries whose trading or diplomatic relationships with the world’s biggest economy are called into question by the president-elect’s protectionist campaign promises. For example, investing in Mexico would involve a certain level of risk until there is more clarity on trade barriers, or indeed that notorious wall.
However, the example of Mexico is also a reminder of the opportunities presented by currency movements. With the peso stabilising just 0.6 per cent above its 8.3 per cent plummet against the dollar on Wednesday, Mexican real estate may look very attractive to investors unconvinced of purported threats to the country’s economic fortunes.
We are, of course, intimately aware of the pros and cons of currency devaluation here in the UK. Though the pound is perhaps not the safe haven it once was (most traders flocked to the Yen during Wednesday’s momentary turmoil), it would be fair to expect tentative movements against the dollar as the geopolitical dust settles.
It is not yet clear whether British buyers of property overseas will feel a modest increase in their purchasing power as the pound strengthens (it is currently trading at a multi-week high against the euro), or whether a sturdy dollar will continue to attract international bargain hunters to UK property. It is perhaps too soon to talk about the 28% of polled Americans who claimed to be pondering a Trump-induced exodus (or where they might relocate to), but the UK will likely remain good value for some time.
Though kneejerk reactions to Wednesday’s stateside surprise are already being overturned, there are surely more twists in the story to come. While we see no immediate cause for concern, times of uncertainty like this also bring opportunities. We welcome investors to talk to us about other global markets that we think show great promise either because or in spite of this week’s developments.