ETFs react to first Clinton-Trump presidential debate

Sep 28th, 2016 | By | Category: ETF and Index News

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The market bounce during and after the first US presidential debate has given exchange-traded fund investors a clue as to where they should place their cash come 8 November.

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Polls indicate that Hilary Clinton won the first US Presidential debate, boosting equity ETFs in the US and Asia.

A record-breaking 100 million people tuned in to the debate on Monday 26 September 2016. While both the Clinton and Trump camps claimed victory, the markets perceived that Clinton had won the first battle.

The SPDR S&P 500 ETF (NYSE: SPY) rose by 1.1% between 26 and 27 September.

The iShares Russell 3000 ETF (NYSE: IWV), tracking the Russell 3000 Index (a proxy for the total US stock market), began to reverse a five day decline and had risen 1.1% by Wednesday 28 September 2016.

In international equity markets, Clinton’s win seemed to provide relief from the prospect of a Republican victory and the potential uncertainty that could unravel in that scenario.

“The market liked the idea of a higher degree of certainty from her policies,” explained Chris Weston, chief market strategist at IG markets, as reported by the Wall Street Journal.

Equity ETFs tracking Mexican stocks, such as the iShares MSCI Mexico Capped UCITS ETF (CMXC), showed some of the strongest gains. CMXC was up 3.4% in the two trading days after the debate. The US’s relationship with Mexico has been tense this year as Trump has been promising to build a wall between the two countries and renegotiate their trade deals.

Other international markets were broadly positive with Japan’s Nikkei index rising 0.3% in 24 hours after the debate while Hong Kong’s Hang Seng Index gained 1.1% over the same period.

Certain currency markets also responded significantly to the outcome of the debate. The Mexican peso climbed by 2.3% against the US dollar within six hours after the debate, following weeks of stagnation, while the Canadian dollar also made gains against the US dollars. Trump has threatened to rip up the North American Free Trade Agreement if he should come to power.

The relief comes after most polls indicated before the debate that Clinton only had a slim margin over her rival, with Trump claiming two swing states in Florida and Ohio.

In Japan, the yen fell by 0.7% between midnight on Monday – two hours after the debate finished – and 6am the next morning. The Japanese yen is seen as a safe haven during global uncertainty.

For London-based investors, there are ETFs that bet either long or short on the Canadian dollar and the Japanese yen versus the US dollar.

Regarding the Canadian dollar, the ETFS Long CAD Short USD (LCAD) may stand to benefit from weakening in Trump’s bid for the White House while investors who think Trump may have the edge of Clinton come election day may wish to consider the ETFS Short CAD Long USD (SCAD). Each fund costs 0.39% in fees.

ETF Securities also offers the ETFS Long JPY Short USD (JPYP) and the ETFS Short JPY Long USD (SJPY) with fees of 0.39%.

The results of the US Presidential election are set to be one of the year’s major events to potentially disrupt US stock markets, which have trended upwards throughout most of Barack Obama’s terms in office. SPY has risen continually throughout the President’s second term and since the Democrat entered the Oval Office in January 2009, it has climbed more than 132%. These figures did not impress Donald Trump though.

“Now, look, we have the worst revival of an economy since the Great Depression,” Trump said at the debate. “And believe me: We’re in a bubble right now. And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.”

Trump, a favour of isolationism, has spoken in favour of Japan and South Korea obtaining their own nuclear weapons so they would not have to rely on US aid. He also has spoken against NATO, NAFTA and Obama’s health insurance plan, known as Obamacare.

There are two more presidential debates before election day – scheduled for 9 and 19 October.

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