Trump v super rules: Which will have a bigger impact?

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Investors will need all their concentration to avoid being mugged by President-elect Donald Trump. Any hopes that Trump will tone down his approach once in the Oval Office appear to have been dashed by last week’s shambles of his first press conference.

For investors wanting more details on Trump’s tax, trade and economic policies, they got mainly bluster and bullying of the press. Trump failed to give the markets any more detail on several policy moves. Instead he opened up new skirmishes with the pharmaceutical industry and ran his news conference like a spoiled child, refusing to take a question from major news channel CNN.

Disappointed markets reacted badly. Some investors fear that, for all Trump’s promises of business-friendly economic policies in the long-term, these may come at the cost of erratic short-term announcements and off-the-cuff comments attacking companies. Investors may have to learn to live with a president who seemingly tweets at will and thinks in 140-character word-bites.

Clearly, President Trump is going to be hard work for electors and investors; he is over-turning much of the past accepted behaviour of presidents. His term may coincide with turning points in the markets – but some are probably thinking that he doesn’t need to make things worse.

So, what’s the solution for investors over the next four years? It might be hard on those who live on day-to-day movement in the share market, but this may be a time to ignore most of the noise from politics and concentrate on the things that really matter.

The historical, long-term records of US presidents and markets show that there is only a very slight difference in investment returns under Republican or Democratic presidents. Of course, that’s averaged over a couple of centuries of market returns, but it indicates that other factors rather than politics drive markets.

If investors can look beyond Trump’s stream of consciousness twittering, and concentrate purely on economic and business numbers, there is probably some encouragement for the share market, both on overseas markets and here in Australia. The US economy does seem to be strengthening and profits recovering.

As long as investors can see Trump’s unprecedented tax cuts coming and big infrastructure spending unleashed, inflation, rather than deflation, looks more likely. Equity investors aren’t going to complain if US policy errs on the inflationary side.

The Australian picture, however, is less certain as investors will be watching the next GDP numbers and hoping for positive, rather than negative GDP growth. To some extent, that’s reflected in our local share indices which, unlike the US and UK near peak levels, are still some way off their high.

Macro factors aren’t helpful. Local interest rates are edging higher, the Australian dollar is inconveniently firming (which, if sustained, could dull some of the gains from higher metal prices).

At the micro level, some growth stocks are revealing their riskier side. There has been an unsettling uptick in corporate naughtiness – stocks like Bellamy’s, Primary Health Care, and now Sirtex are showing that there can be a difference between growth and fashion in stocks. Higher yielding stalwarts – banks and infrastructure – no still have dependable attractions. Property is losing its attraction for SMSF investors, with residential markets clearly peaking.

Super-imposed on this are ominous rumblings on the global front. Once again, President Trump looks like he will push boundaries rather than make diplomatic soothing noises. This need not lead to outright conflicts; hopefully, we will just see more games of diplomatic “chicken” to resolve standoffs.

Markets can’t anticipate any outbreak of serious global conflict – as they haven’t had to since the start of the Cold War. Instead, investors simply will need to maintain their default, long-term position that diplomacy will prevail.

So, given that SMSF investors have no real long-term alternative to investing or to a leaning to equities, the big decisions have been made. This means that starting out in 2017, investors could usefully spend their time concentrating on ensuring their fund’s strategy is ready for the changes coming on July 1 and fine-tuning their portfolios.

The wide-ranging July 1 legislative changes may have been temporarily overlooked in the recent Trump rally. The new limits on tax-exempt balances and on contributions will make people carefully consider their asset mixes, both in and outside super.

Every SMSF investor should be checking with their superannuation adviser in the next month or so because chances are the biggest influence on their SMSF could be Treasurer Scott Morrison’s new rules rather than President Donald Trump’s new regime.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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