Could Donald Trump Roil the Financial Markets in 2016?

Republican presidential candidate Donald Trump might be a “major cause” of volatility in the global financial markets in the first half of 2016, according to Nigel Green, CEO and founder of deVere Group, an international financial consultancy with over 80,000 clients. Clearly, Mr. Green hasn’t warmed up to Donald Trump’s crass political campaign, which has caused no shortage of controversy less than a year before the 2016 presidential election.

“Trump has been touring TV studios and appears to be utterly unmoved by the storm of criticism and outrage – in fact he seems to be thriving on it,” Mr. Green says, as quoted by Forbes. “This suggests we could expect more of this kind of rhetoric from the billionaire would-be president between now and July, when the candidate is announced.”[1]

This got us thinking: Aside from his tremendous wealth, how would Donald Trump influence the financial markets negatively in the run-up to the election?

Spooking Investors

Mr. Green reminds us that, as the frontrunner in the race to represent the GDP next November, Mr. Trump has an outside chance of becoming chief executive of the world’s largest economy. Whether we like it or not, what he says matters. As such, Mr. Green tells us that Trump’s extreme views on immigration, border control,[2] Muslims and even the Internet[3] could “spook investors and trigger uncertainty in the financial markets.”[4]

Historical Evidence

Mr. Green’s views on Trump aren’t that farfetched, according to a 2002 study on the impact of elections on the financial markets. By studying financial collapses across several emerging markets, the researchers found that financial crises are much more likely to occur during election periods. In fact, eight of the nine financial collapses studied across 22 emerging markets occurred during such transition periods.

The abstract of the paper states:

“Since the odds of financial crisis tend to be much larger during the political election periods, institutional investors should take that into account when making emerging market investment during those time periods.”[5]

Trump Makes Things Worse?

Whether you agree with Green or not, he didn’t say Donald Trump would be the sole or even the primary cause of market turmoil next year. And he’s certainly right. Uneven global growth, a protracted slowdown in China, plunging commodity prices and ongoing security threats are all expected to adversely affect the global financial system next year.

Green adds, “Most investors already expect 2016 to be an unsettling time for the markets and have assessed and rebalanced their portfolios to take advantage of the potential opportunities and to mitigate the risks.”

Throwing Donald Trump into the mix will only make things worse, according to Green.

“[A]n increasingly outspoken and extreme Donald Trump is making the outlook for at least the first six months of next year more opaque,” he added.[6]

Trump Leads the Pack

Donald Trump has been the clear leader in the Republican presidential polls since the summer. As of mid-December, Mr. Trump held nearly 37% support among voters likely to vote Republican, according to the Huffpost Pollster. Texas Senator Ted Cruz is a distant second at nearly 18%.[7] A separate poll from Quinnipiac shows Trump in the lead with 28% support, followed more closely by Cruz at 24%.[8]

The Real Clear Politics average of eight separate polls shows Trump well out in front with nearly 34% of the vote.[9]

[1] Roger Aitken (December 20, 2015). “Could Donald Trump ‘Spook’ Financial Markets In 2016?” Forbes.

[2] Dolia Estevez (September 3, 2015). “Debunking Donald Trump’s Five Extreme Statements About Immigrants And Mexico.” Forbes.

[3] David Goldman (December 8, 2015). “Donald Trump wants to ‘close up’ the Internet.’ CNN Money.

[4] Roger Aitken (December 20, 2015). “Could Donald Trump ‘Spook’ Financial Markets In 2016?” Forbes.

[5] Jianping Mei and Limin Guo (2004). Political Uncertainty, Financial Crisis and Market Volatility. European Financial Management 10 (4).

[6] Roger Aitken (December 20, 2015). “Could Donald Trump ‘Spook’ Financial Markets In 2016?” Forbes.

[7] Huffpost Pollster. 2016 National Republican Primary.

[8] Steve Benen (December 22, 2015). “Latest polling delivers more bad news to GOP establishment.” MSNBC.

[9] Real Clear Politics. 2016 Republican Presidential Nomination.

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