The United States political landscape is not quite as important for the performance of US shares as many believe, Craigs Investment Partners broker Chris Timms says.
There would be some sectors of the market that would benefit more than others, depending on who won.
But the US economy would get on with it, regardless of the outcome.
The US was the largest and most innovative economy in the world, having been described as where the world’s greatest universities met the world’s deepest pockets, he said.
It had a flexible hardworking labour force and capital quickly moved from failing industries to revolutionary new ideas.
The US S&P 500 index was introduced in 1927 and it had provided a positive annual return 66% of the time, with an average return of 7.4% a year.
There had been 22 elections during that time and the market had risen on 73% of those occasions, Mr Timms said.
In the early part of the US presidential campaign, Democratic nominee Hillary Clinton appeared the frontrunner to win, consistently leading what were very close polls.
The recent health scares might have changed the odds but Mr Timms said Mrs Clinton was clearly the more predictable of the two candidates.
Should she secure the presidency, Craigs expected her predictability to be viewed positively by markets which despised uncertainty.
"With a Clinton win largely suggesting a ‘business as usual’ environment, the majority of the debate is around the ‘what if’ scenarios and the risks of a surprise Donald Trump victory."
A Donald Trump presidency would be far from dire for the US economy or the US dollar, at least over the short to medium-term, Mr Timms said.
Mr Trump’s campaign had repeatedly promised increased government spending, trade protectionism and more restrictive immigration policies.
Each of those policies would have immediate positive impacts on both the US economy and the dollar, he said.
An increase in fiscal stimulus, in the form of government spending and investment, would provide a much needed boost to the US economy.
Trade protectionism and more restrictive immigration policies would lead to job creation (lower imports) and wage increases due to fewer workers.
Increased economic growth and rising wage pressures would likely cause the Federal Reserve to increase interest rates at a faster pace than it would have otherwise, all of which was bullish for the dollar, Mr Timms said.
However, Craigs did see the potential for global sharemarkets to respond negatively to a Trump win.
"The initial uncertainty created by another surprise political result could be significant.
"All else being equal, we will treat an equity market sell-off triggered by a Trump win as a buying opportunity."
Once the dust settled, investors would start to price in higher economic growth, higher wages and higher interest rates in the US. Investors must acknowledge there would be clear winners and losers from Mr Trump’s policies, Mr Timms said.
From a regional perspective, US equities should continue to outperform other global markets.
Higher wages and strong US economic growth would come at the expense of trade with other countries.
It was worth restating Craigs’ longstanding view of US dollar-denominated assets being a powerful investment theme for New Zealand investors.
Companies generating strong and sustainable US dollar cash flows were even better, he said.
Companies with exposure to government infrastructure-related projects would also be clear beneficiaries.
Regardless of the outcome of the election, US government spending on infrastructure was likely to increase over the next few years.
Defence spending was also likely to increase, regardless of the outcome of the election.
"It is worth noting in both cases, spending is likely to be greater in a Trump presidency."
The return of fiscal stimulus through government spending also had the potential to finally reignite global growth and inflation, Mr Timms said.
If government spending and investment was financed by global central banks through "helicopter-style" monetary policies, the potential for a successful reflation increased dramatically.
Helicopter money implied free and irreversible distribution of money to the end consumers.
It could be achieved by literally transferring money to individuals’ accounts for free or by reducing taxes universally to all households, enabling more disposable money in their hands.
Such measures were utilised when the economy was in slowdown or in recession and interest rates were hovering around zero or even turning negative.
"If such a radical marriage of fiscal and monetary policy seems unlikely, it is worth pointing out so did quantitative easing and negative interest rates."
Discussion papers and public statements from policymakers showed those policies had growing support.
Mr Trump and like-minded politicians were more likely to be open to accepting ever more radical unconventional policies than their predecessors, Mr Timms said.
Ultimately, a return of growth and inflation would prove to be positive for equities although the process was unlikely to proceed without friction.
A return of inflation could prove to be a surprise for global markets which had only recently come to grips with the notion inflation and interest rates might remain low, he said.
The obvious losers of a Trump victory were companies whose business models depended on global trade and on cheap labour.
A return of protectionist policies across the developed world was also a material negative for emerging markets.
Those countries had benefited disproportionately from the free movement of goods, capital and labour across borders in past decades and they would equally suffer as the trend reversed, Mr Timms said.
