What does Trump’s victory mean for Australia?
The Australian market took a wild ride on a fascinating US election day, but things are beginning to look up.
At market close in Australia on the day before the US election everything appeared fine. Multiple experts and tipsters from the US all but guaranteed Hillary Clinton a win. But with memories of Brexit still looming large, nobody was 100% confident in the predicted outcome.
In fact, early in the day of voting, British politician Nigel Farage tweeted “Market moves suggest Brexit may be happening again”.
Then his fantasy began becoming a reality and the unthinkable began to occur. Clinton’s chances of winning the election, according to the New York Times, dropped from 84% to 57% in just a few short hours, and soon after that Trump’s chances of a win were reported at 59%. By 3pm the Trump campaign was up to an 87% chance of success.
The ASX falls
As Clinton’s chances fell, so did the ASX.
By 1.30pm AEDST the ASX was down 1.2%, then 1.8% 30 minutes later, and gold surged 2.5%. By 4pm the ASX had tanked 3.6%, its largest drop since September 2015, when the Chinese sharemarket took a dive. The Australian dollar dropped dramatically from its six-month high (driven, no doubt, by confidence in a Clinton victory) of US77.78c to US75.89c.
In a story in Fairfax newspapers, Political and International Editor of the Sydney Morning Herald Peter Hartcher discussed in detail why a Trump Presidency would be damaging.
Most of Australia’s big banks and other financial institutions, he said, had done some sort of scenario planning around fall-out from a new American Presidency, and so they should.
The Economist Intelligence Unit’s Global Forecasting Service put a Trump win on the same level of risk as global terrorism, and also the same level as Chinese expansionism causing a war to break out in the South China Sea.
Clinton was Trumped and the USA had a new President and a new party.
And no matter the result, Hartcher pointed out, both Clinton and Trump opposed the 12-nation Trans-Pacific Partnership, instead choosing protectionism just like the European Union. In the meantime, China and the other 16 nations of the Indo-Pacific, including Australia, are moving in the opposite direction.
Should Trump enter the Oval Office, an immediate Wall Street sell-off would cut share values by 10 to 12%, Hartcher said. In the longer run assets worldwide, including shares, real estate and bonds, would fall as interest rates in the US rose. And as the day wore on, this was all becoming very real.
The closest the race came by 3pm, when Florida was called for the GOP and Colorado and Virginia for the Democrats, was 201 electoral college votes for Trump and 190 for Clinton.
And then Clinton was Trumped and the USA had a new President and a new party.
What does it all mean for the Australian market?
Managing Director of K2 Asset Management Campbell Neal was quoted as saying things may not be as bad as people predict.
After all, life quickly moved back to normal after the Brexit news. Perhaps the change could be good for corporate America, he suggested.
But few immediately sugar-coated the Trump Presidency, only to say his radical and often divisive ideas will be heavily watered down by the political system, particularly by his own party.
Australia’s strategic environment will be transformed overnight.
The most pessimistic points of view came from those who interpreted the change of leadership from a global security perspective. Trump has been vocal about pulling out of regions such as the South China Sea, and any other areas that are not of immediate strategic interest to the USA. Australia’s defence relationships would suffer, as would our military alliance with the US, they said.
“I think it’s pretty clear cut … Australia’s strategic environment will be transformed overnight,” Brooking's Institute security analyst Thomas Wright said.
“There will be real doubts about the alliance with the US, the alliance system in the Asia-Pacific more generally, and whether the United States will remain present in the region.”
Closer ties with Asia?
As the news has sunk in since then, other more positive or differing views have come to the fore. Former Australian Prime Minister Paul Keating says this is the perfect opportunity for Australia to cut its close ties with the US and pivot towards Asia.
Professor Joseph Camilleri from LaTrobe University says the Trump Presidency is “pregnant with possibilities”.
It presents a unique moment, he says, for America’s friends and allies to fashion a different course to the one Trump imagines, one based on “nobler ethical and humanistic traditions”.
The markets recovered surprisingly quickly from the shock of the new. All major indices (apart from very specific ones, such as the Mexican market and currency) bounced back within 24 hours of the election result being announced, demonstrating the elasticity and pliability we witnessed after the Brexit vote.
Perhaps what helped the most was Trump’s victory speech in which he toned down his previous hard-line messaging and sounded almost as if he will not destroy all former alliances.
Of course, as with the Brexit news, only time will tell the effects on Australia of the Trump Presidency. Experts almost unanimously agree the story will not end well, but that’s what they said about Trump’s campaign…