It is so easy to blame politicians for our poor investment performance.
While the recent political elections in both the UK and the US produced shocking results, investors still need to focus on making good investment decisions. We simply have no other option but to play with the hand we have been dealt.
We all know that uncertainty produces volatility, but it also provides great investment opportunities.
Most Canadians agree that free trade is a good thing for all countries, and that protectionist policies really do not work over the long term. However to our amazement, citizens in the UK and the US have rejected this idea, opting to focus more on the loss of jobs and some issues with immigration.
Once again we should all know that we need immigrants to sustain our long term economic growth. Historically immigration has always provided long term benefits. We should also know, but many of us choose not to, that the loss of jobs to lower paying Emerging Market countries was largely a result of technological innovation and not simply a short term cost cutting measure.
Taking all this uncertainty from both the Brexit vote and the US election, we still need to uncover the best companies and sectors to invest in, just like we have always done.
We must also be careful not to take every Trump twitter as government policy. Donald Trump is clearly trying to run the country like a private owner of a business. He acts impulsively, often childlike at times. If someone disagrees with him, he goes into a tirade comparable to a tot having temper tantrums.
Despite all this political upheaval, there is still lots of money to be made. While most of us will never agree with Trump’s most controversial policies regarding immigration and trade restricting ideas, we can still make solid investment decisions.
All we really need to do is to determine what industries will do better than others and what the economy wll do from his proposed policies.
Lower corporate taxes, less financial services regulations, revision to Obamacare, repatriation of foreign cash of US companies at a low or zero tax rate and an increase in infrastructure spending will provide quite a bit of fiscal stimulus. This will hopefully lead to stronger corporate profit growth and solid investment returns.
However we must also assess the negative repercussions of a possible US trade war with China, Europe, Mexico and possibly Canada. Negotiating better trade deals with the rest of the world by threatening to impose high import tariffs and a border tax is a dangerous game and can result in retaliation from the other country.
Despite this risk, investors cannot assume that all of Trump’s proposed policies will be implemented exactly as he wants. This is very unlikely.
An example of this is that many professional and retail investors have sold a substantial amount of their Canadian energy holdings in order to switch into US ones. They have assumed that the proposed border tax will be very damaging to Canadian companies. This is probably an overreaction to what will actually happen and creates a buying opportunity for Canadian oil and gas stocks.
Canada remains a strong ally of the US. NAFTA has benefitted Canada, US and Mexico and this is clearly evidenced by the 30-35 US states that do not want to see a trade dispute with our country.
Another investment opportunity has developed by the uncertainty created by the possible revocation or revision to Obamcare. Despite some fundamental flaws with the implementation of Obamacare, both parties agree that it is critical to ensure that all the recently insured maintain their insurance coverage. Currently US healthcare stocks are currently trading at some of the lowest valuations in many years. This creates a long term buying opportunity.
In conclusion, investors need to be aware of the current political environment, but it need not interfere with their investment returns.