Five tips for retail investors in the wake of Trump's victory

A man walks past a Pacific Investment Management Company LLC (Pimco) advertisment which is displayed on a building in Hong Kong, China.
A man walks past a Pacific Investment Management Company LLC (Pimco) advertisment which is displayed on a building in Hong Kong, China. PHOTO: BLOOMBERG

1. BE READY FOR MORE UNCERTAINTY

Pacific Investment Management Company (Pimco) said it has been encouraging investors to consider a more defensive posture.

"We still think the defensive approach is appropriate because of the likelihood of rising uncertainty and volatility, which will create risks but opportunities as well," it said.

The uncertainty in the next 12 months will stem not just from the outcome of the US election, but also from developments in Europe where key elections will be held in France and Germany, noted Mr Vasu Menon of OCBC Bank.

The US election could further spur the populist movements in these countries as well and cause election upsets. Uncertainty over policy at the US Federal Reserve and in China are other factors which could cause volatility ahead.

OPPORTUNITIES AHEAD

The sectors that we are most positive towards are information technology and healthcare, where medium-term innovation and demographic trends remain supportive. The recent correction in healthcare stocks has also made them more attractive. ''

ABN-AMRO, which thinks equity markets could represent an opportunity for underexposed clients.

2. STAY DIVERSIFIED

Financial experts point to the importance of portfolio diversification, particularly during such uncertain times.

One way for investors to deal with the uncertainty and volatility is to stay diversified across various asset classes and over time through dollar cost averaging, said Mr Menon.

"Sharp pullbacks in the markets could offer buying opportunities should valuations become more compelling. However, investors must be prepared to stomach the accompanying market swings should they wish to do so and be ready to take a medium-term view with their investments," he advised.

He suggested that a good way to seek exposure is through a diversified portfolio of equities and/or bonds.

3. SPOT OPPORTUNITIES

Standard Life Investments advised that this environment is likely to create opportunities for "bottom-up" stock-picking in both equity and bond markets.

"Even in a benign trade policy scenario, firms with extensive global value chains, or reliant on migrant labour, would face a more uncertain future, while firms facing less onerous regulatory requirements stand to benefit. If the new Trump administration pursues an aggressive unwinding of policies that have supported globalisation, an extended period of weakness for risk assets is likely," it said.

Mr Mark Burgess, head of equities at Columbia Threadneedle Investments, wrote in a note that obvious winners in the US domestic economy are infrastructure, with a focus on roads, bridges, airports and sectors that would benefit from mergers and acquisitions, and industry consolidation, about which President-elect Donald Trump is particularly enthusiastic.

Financials and the defence sectors are likely to thrive while other sectors likely to do well include consumer staples, telecoms, energy and mining.

Mr Menon said that sharp pullbacks could provide buying opportunities for those with a strong risk appetite and medium-term horizon. In terms of regional allocation, Asia ex-Japan could be attractive on a relative basis, given the region's cheaper valuations and improving macro fundamentals.

"Valuations for Asian equities are not high, and in the medium term, the region should grow at a faster rate than its developed market peers," he said.

ABN Amro Bank said that once volatility subsides, equity markets could represent an opportunity for clients who are underexposed to stocks.

"The sectors that we are most positive towards are information technology and healthcare, where medium-term innovation and demographic trends remain supportive. The recent correction in healthcare stocks has also made them more attractive," it said.

4. WATCH FOR SIGNS

With the present lack of clarity on Mr Trump's policies, it would be prudent to look out for certain signs. Market observers say one key sign is what the 45th US President will actually do versus what he has said.

Standard Life Investments emphasised the importance of not overreacting, and waiting for clear announcements of Mr Trump's priorities and agenda.

Mr Daryl Liew at Reyl Singapore said: "There is a lot of uncertainty in the markets currently because investors are guessing Mr Trump's policies, but expect more clarity in the next few months leading up to inauguration when we find out who Mr Trump lines up as his economic advisers."

5. BACK TO BASICS

Mr Ian Martin, chief executive of HSBC Insurance (Singapore), said this is a timely reminder for everyone to have a comprehensive financial plan that includes protection and is supported by a disciplined savings habit.

When you have a long-term well-diversified wealth management plan in place - one that is able to withstand short-term shocks - you can sleep soundly at night.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on November 13, 2016, with the headline 'Five tips for retail investors in the wake of Trump's victory'. Print Edition | Subscribe