A potential Trump victory is highly likely to lead to higher inflation in the US as a result of tariffs and immigrations cuts. Photo: BILL PUGLIANO / GETTY IMAGES NORTH AMERICA / Getty Images via AFP
You might think the US election is something that is happening (perhaps mercifully) far away. You might hope that the result could have little impact on your day-to-day life. But have you thought about how the result might affect your investments, and specifically your KiwiSaver?
Rupert Carlyon, founder of KiwiSaver provider Kōura, said a Donald Trump win in particular would present opportunities for investors.
He said "in between the randomness", Trump had consistently talked about a number of key policies.
They included tariffs, particularly a 60 percent tariff on imports from China and 10 percent to 20 percent on other parts of the world.
He had also talked about lower taxes, and a reduction of the corporate tax rate to 15 percent.
Trump has talked about deregulation to make it easier to build factories and drill for fossil fuels, plans to strengthen the border and make the country a leader in cryptocurrency.
Carlyon said if even weaker versions of these policies were enacted, there would be higher inflation in the US as a result of tariffs and immigrations cuts.
That would mean higher interest rates which would mean falls in bonds.
The US dollar would be stronger. While the policies would be probably be positive for the US equity markets, others, such as Japan and Europe could suffer. Carlyon said Bitcoin would also go higher.
He said that could mean Kōura investors, for example, might choose to put their money into the US equities fund or the crypto fund if they felt further increases in those asset classes were coming. Investors with other KiwiSaver providers would need different strategies.
"It is also important to point out that the markets have already priced a fair amount of this in. The US equity market and Bitcoin have had a very strong few weeks driven by a combination of improved economic outlook and also growing confidence that Trump will win.
"So if you are going to try and play the Trump trade, go in with your eyes wide open and be prepared to stick through the short term volatility that we might see through the election."
Kamala Harris, in contrast, has policies that would have less of an international effect, such as promoting affordable housing, reducing healthcare costs and increasing taxes on wealthy individuals and large companies.
She has said she would increase the corporate tax rate to 28 percent from 21 percent. She has also talked about increasing the capital gains tax rate to 28 percent for people who earn more than $ 1 million a year and a potential wealth tax on people with net worth of at least $100 million.
She has distanced herself from Trump's tariffs but is likely to continue the Biden administration's tariffs on Chinese electric vehicles.
At Sharesies, co-chief executive Leighton Roberts said there were some signs that the US political landscape could be attracting investor attention.
"In general, the US market remains popular for Sharesies investors, particularly funds. Our latest data shows that US trading was higher in October than in prior months - both in terms of the percentage of trade on the platform and the value of trading taking place. The election could be a factor there."
He said there had been some recent trading volatility in Trump Media and Technology Group shares.
Kernel KiwiSaver founder Dean Anderson said whoever won the election, people should be prepared to see their balance move around over the coming weeks and potentially months.
"There is a lot at stake, in arguably the most polarising modern election. There is a clear split in agendas, each having major ramifications for the global economy, including our small island nation stuck at the bottom of the world. At the moment, financial and betting markets are picking a Trump win.
"Investors will see their balances fluctuate through several factors, including large swings in our foreign exchange rates, markets anticipating likelihood of tariff impacts, and as markets adjust based on which sectors they think will perform better under respective leaders.
"Investors need to remember that trying to guess and outsmart the market is a dangerous game. For some, there will be a lot of emotion this election based on personal views and values. However, when it comes to your investments and KiwiSaver, while there will be more noise in the short term, history shows that financial markets continue to move along under both democratic and republican leadership. Businesses continue to innovative and grow, and long-term, well diversified investors get the benefit of having a stake in that."
As for short-term impacts, Carlyon says it could be a good idea to "delete your KiwiSaver app" and look at it again once any uncertainty is resolved and market volatility reduces.
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