Trump’s election wipes out $35 billion from ASX, S&P/ASX 200 Index drops 1.9%

By @vitthernandez on
ASX
An investor reacts as he looks through a window at boards displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, November 9, 2016. Reuters/Steven Saphore

A large hedge fund in the US warned on Wednesday that if Republican candidate Donald Trump would win, it could wipe out US$1.9 trillion (A$2.49 trillion) from the US stock market. Even though Australia is thousands of miles away from the US, the political event that shocked the world resulted in US$35 billion (A$45.78 billion) wiped out from the Australian Stock Exchange (ASX).

Trump leading Hillary Clinton in the count caused a 1.9 percent slump, or 101 points, on the S&P/ASX 20 index when trading ended on Wednesday. The index had early gains of 1.1 percent, but by afternoon traded down by up to 3.9 percent and appeared to push below 5,000 points, Sydney Morning Herald reports.

The daily notes that selling on the ASX was largely indiscriminate, and only 15 of the top 200 names gained, majority being miners, led by Newcrest Mining which added 9.8 percent. Investors preferred gold which increased 3.8 percent to US$1,324 (A$1,733) an ounce.

However, News.com.au reports that after the initial shock of Trump’s victory, markets are starting to recover. Following larger losses in the US stock market, Paul Nolte, portfolio manager at Kingsview Asset Management, explains that no one hedged for a Trump win “so people are trying to get out as quickly as possible.”

Protesting Trump's Win Berkeley High School students hold signs protesting the election of Republican Donald Trump as President of the United States in Berkeley, California, U.S. November 9, 2016.  Reuters/Elijah Nouvelage

But when Trump delivered his acceptance speech and promised to unify the divided country, global financial markets steadied. Eric Wiegand, senior portfolio manager at the Private Client Reserve at US Bank, says the president-elect’s surprise conciliatory gesture “went a long way to demonstrating, perhaps for the first time or very few times, his presidential disposition, and gave a greater sense of calm.”

This resulted in the Dow increasing by 256.95 points, or 1.4 percent, to 18,589.69, while the S&P 500 index added 23.7 points, or 1.1 percent, to 2,163.26 and the NASDAQ composite index went up 57.58 points, or 1.1 percent, to 5,251.07.

Nigel Green, founder and CEO of deVere, an independent financial advisory, says Trump’s win as the 45th president of the US is a bigger deal than Brexit. Despite the slow recovery of the market from the shock, he warns of a bumpy ride in the markets. Green adds enormous volatility could still be expected in the markets.

But while the volatility turns off many investors, Green says most successful investors welcome it. He notes that there are major buying opportunities where there are fluctuations.

“Fluctuations can cause panic-selling and mis-pricing. High quality equities can then, for example, become cheaper, meaning investors can top up their portfolios and/or take advantage of lower entry points. This all, in turn, means greater potential returns,” Green says.

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