Equities were sent lower as winners and losers among European stocks swapped places in the immediate aftermath of Donald Trump’s election victory.
Riding on bets the moves went too far, industry groups that rallied as Trump defeated Hillary Clinton lost ground, while those that were punished recovered. After rallying Wednesday on optimism of higher infrastructure spending, construction firms and commodity producers were among the worst decliners. After surging on speculation of less regulatory oversight, drugmakers also fell. From two days of losses, bond-proxy sectors such as utilities and real estate firms rebounded.
“We’re taking a breather and beginning to think about the wider repercussions of” Trump’s win, said Witold Bahrke, a macro strategist at Nordea Investment Funds in Luxembourg. “You can say this is pro-growth and pro-equity, but it depends hugely on the concrete type of measures he takes. We are moving away from the hope phase to the delivery phase.”
European stocks were boosted by industries seen benefiting from the outcome after an initial selloff prompted by the surprise of Trump’s win wore off. As did miners and construction heavyweights such as banks and health-care shares rallied. Dragging down defensive shares such as utilities and real estate were the Republican’s promises to increase public spending which also spurred bets for higher inflation. The Stoxx 600 is up 2.7 percent this week.
Amid concern the Federal Reserve will become more aggressive in raising rates under a Trump-led administration, emerging-market focused money managers tumbled on Friday. At least 7 percent was lost by Ashmore Group Plc and Aberdeen Asset Management Plc. Slipping 6.3 percent was lender Standard Chartered Plc, which gets most of its revenue from Asia.
Bakrke said that the implications of the vote are “most significant in the emerging markets, which are a dangerous place to be not only in the coming weeks, but probably also the coming months.”
“Partly because of the protectionism tendency in the U.S. policy from now, but also because of the significant rise in the dollar, we might have focused too much on the pro-growth outcome of this election, and not enough on the flip side of the coin — much tighter financial conditions primarily driven by the dollar,” Bahrke added.
After surging 7.8 percent in the past four days on bets higher inflation will improve profitability and financial rules will ease, the Bottom of Form
Stoxx 600 Banks Index fell 0.2 percent. As Barclays Plc said European lenders may reach faster, cheaper settlements with the U.S. Department of Justice after Trump’s win, Deutsche Bank AG tempered the drop, up 4.6 percent. Up 8.3 percent after posting net income that beat estimates, Unione di Banche Italiane SpA also gained.
After Trump selected a prominent critic of global warming to lead his environment agency’s transition team, carmakers were the biggest advancers. There was a 5.6 percent rise in the stocks of Fiat Chrysler Automobiles NV which gets most of its revenue from the Americas. BMW AG and Volkswagen AG added at least 2.4 percent.
(Adapted from Bloomberg)