With Donald Trump confirmed as the new U.S. President and Republicans likely controlling both the Senate and House (a “Red Sweep”), markets are bracing for potential shifts in economic policy and investment dynamics. This development has fueled a global “risk-on” rally, where investors are optimistic and shifting capital into riskier assets like stocks, the U.S. dollar (USD), and cryptocurrencies. However, the fundamentals suggest that high volatility may continue, which could affect portfolios in both the short and long term.
Let’s explore how this new political landscape might shape the global market and what it means for Indian investors.
A Global Market Rally – But With High Volatility
The Trump Effect
The “Trump trade” is back, with investors expecting policies that may benefit businesses, such as tax cuts and spending on infrastructure and defence. However, these expectations come with a catch. While markets are rallying now, global growth and inflation are likely to experience increased fluctuations. This higher structural volatility challenges traditional investment strategies like “buying the dip” (investing after a price drop) and timing market rallies. Instead, investors may need to take a more flexible, adaptive approach to navigate the ups and downs that lie ahead.
Interest Rates on the Rise
A “rising term premium” is a trend likely to persist under Trump’s economic policies. This means that bond yields are expected to climb, making borrowing more expensive and affecting the returns on fixed-income assets. Higher yields also raise the likelihood of “currency wars” — situations where countries might try to weaken their currencies to boost exports. These developments, if sustained, could redefine the risks for various asset classes over the coming years.
Currency Volatility
One early indicator of these shifts can be seen in currency markets. The U.S. dollar index (DXY) could rise to 110. Such moves would have significant ripple effects across economies, particularly emerging markets with weaker currencies.
India: Facing FX and Rates Market Turbulence
For India, the immediate effects of Trump’s presidency are likely to be felt in the FX (foreign exchange) and rates markets.
The Indian Rupee (INR)
The INR may weaken due to currency pressures. The INR’s natural weakening bias could create challenges for Indian investors, who may need to consider hedging strategies for international investments.
Bond and FX Volatility
The rise in bond yields and currency fluctuations could lead to increased volatility in the bond and FX markets, potentially putting pressure on the Reserve Bank of India (RBI) to prioritise financial stability over its usual focus on inflation management. This shift might limit the RBI’s ability to cut interest rates, potentially resulting in a shorter rate-cut cycle than anticipated.
The Market Impact of Trump’s Economic Policies
Trump’s economic strategy involves tax cuts, higher spending on infrastructure and defence, and significant changes to trade policy. Here’s how these factors are expected to play out:
- Fiscal Expansion
Trump’s proposed extension of the 2017 tax cuts, set to expire in 2025, would add around $4.6 trillion to the U.S. deficit over the next decade, potentially rising to $7.5 trillion with expanded policies. This fiscal stimulus could lead to higher interest rates and influence bond markets worldwide. - Tariff-Driven Trade Policies
Trump’s stance on trade includes tariffs such as a proposed 60% tax on Chinese imports and 100% on electric vehicles from Mexico. These policies could benefit certain U.S. industries but also increase costs for U.S. consumers and businesses. Tariffs of this scale would heighten trade tensions, disrupt global supply chains, and increase operational costs for companies with international exposure. - Implications for the Dollar
While Trump has previously favoured a weaker dollar to benefit U.S. exporters, the fiscal stimulus under his administration might actually strengthen the USD, amplifying volatility. This trend may exert pressure on Asian emerging market currencies, including the INR, potentially dragging down purchasing power and investment returns in those regions.
What This Means for Indian Investors
India’s lower reliance on foreign portfolio investors (FPIs) for sovereign debt (around 3%) and its strong domestic demand could help it maintain a relatively lower bond risk premium than some other emerging markets. Indian equities may see temporary gains due to speculative moves by FPIs, but sustained growth in earnings and a solid fiscal position will be key to driving long-term gains.
How Growthfiniti Wealth Can Help You Navigate These Shifts
As volatility becomes the new normal, staying agile and informed is critical for high-net-worth individuals. At Growthfiniti Wealth, we specialise in crafting strategies that anticipate and adapt to market changes, allowing clients to seize opportunities even when market conditions are uncertain.
For investors navigating the impact of Trump’s presidency on global and Indian markets, we’re here to provide guidance that goes beyond the headlines. in**@gr**********.com“>Get in touch with our team to learn how we can help fortify your portfolio against the evolving financial landscape and keep your wealth secure.
