Finding the Trump Card in Volatile Times

Triumphant Trump

Much like the proverbial Phoenix that rose from its own ashes, Donald Trump came from behind and dealt a mighty blow that decimated the Clinton camp. The historic outcome of the election sent shock waves across the United States and beyond its borders. While experts talk about a slowdown in the Emerging Markets and the uncertainty that looms over the economic future of the world, there are pockets where opportunities still loom large.

Uncertainty Pangs

One of the primary issues that have rattled investors in India’s Index benchmark Nifty over the years is whether investments can be timed in order to incorporate or discount factors like high volatility and outperform the market or other odds. One understands that it is nearly impossible to predict such uncertainties, however mean reversion studies have revealed time and again that most multibagger stocks in the Nifty Index tend to revert back to its average over the longer horizon even if it undergoes wild swings in the shorter timeframe. In ways that go unnoticed to the panic stricken investor, this variation of value adds long term investment merit to those who can spot the not.

What’s expensive, what’s not?

Research reveals that the US high-dividend stocks such as Utilities look expensive after five years of incredibly strong performance, however emerging market dividend stocks are on the opposite side of the spectrum. Stocks as well as currencies have been jolted across emerging markets even as the United States elected Donald Trump to power.

The Mexican Wave

Mexican peso for obvious reasons led the slum with a fall of 9% against the USD. Other currencies like the South African Rand and the South Korean Won were left to speculative bets and later dropped by 2% and 1.5% respectively. In the words of Ashley Parrott, head of pan-Asia fixed income at UBS Asset Management, “It’s been extremely volatile, it’s been all over the place”. It’s one thing to layout a manifesto for a President elect that outlines the necessity to build a wall across the Mexican border and its quite another to execute the same. The murky world of derivative bets spin the yarn based on probabilities, for now it’s a toxic emerging market scenario.

Forward Guidance

Things do change faster than you can image in the derivative trading world, the high probability of Hilary being elected as the first Women President gave way to Donald Trump within a blink of an eye. Truth be told, emerging markets, or any other market in the world should only be gauged by the intrinsic value of the asset. The Global economy today is a close knit entity,Brexit for one is an example. It’s too early to conclude whether a Brexit vote will emerge as a boost to the global economy or be a cause of ruin. However markets did react, only to add value to assets which could yield returns in the long run. Donald Trump as a President needs to put the United States of America back on its feet. He needs a positive and inclusive policy that will merge the world into a strong business force. One that can create jobs for the United States and keep the global economy alive and kicking.For those who believe in the mean reversion in asset classes,value investing in emerging markets make a lot of business sense, once the panic settles down.