How to Trump proof your KiwiSaver
Despite multitudes of predictions, this is not the election to end all elections! Unfortunately, at the time, every election is the most important election of all time.
How to Trump proof your KiwiSaver
Table of Contents
4 Nov 2024
Despite multitudes of predictions, this is not the election to end all elections! Unfortunately, at the time, every election is the most important election of all time.
Trump was elected in 2016; markets, media, and commentators all shouted that this was the start of the end of American exceptionalism and the end of the post-World War 2 US-led global system. Four years later he was voted out and normality resumed. In the meantime, the economy and world kept on ticking over and stock markets continued to hit all-time highs. Don’t expect anything different this time.
So hopefully we now agree that while Trump might not be every person’s preferred Christmas lunch guest, 4 years of Trump does not mean that the world will fall apart. So for your KiwiSaver, it probably does not mean a huge amount in the long term. There might be some volatility over the next few weeks as we digest the results but it is not something to worry about. Our suggestion is to delete your KiwiSaver app and look at it again once all of the uncertainty is resolved.
Hopefully, you now agree that a Trump Presidency is not catastrophic and therefore you should not panic. But it raises the next question, will he present any opportunities for investors to this I think that there is a very clear yes.
The policies
In between the randomness, Donald Trump has consistently talked about enacting 5 main policy points:
- Tariffs – he is proposing a 60% tariff on imports from China and 10-20% from other parts of the world
- Lower taxes – he wants to make permanent his 2017 Tax Cut agenda and lower the Corporate tax rate even further. His 2017 tax reform lowered taxes from 35% down to 21%. He wants to make that shift permanent and reduce corporate taxes further to 15%
- Deregulation – he sees regulation as creating significant barriers to productivity and economic growth. He would like to make it easier to build factories, rezone land, and drill for fossil fuels. The environment will be a clear loser under this scenario
- Immigration – he wants to strengthen the border and start deporting any people in the US who are not there legally. He has estimated this could be 15-20 million people, many of whom have been in the US for a very long time and have extended family ties now to the US. Once normalising for the typical Trump Hyperbole, it could be 3-5 million people
- Cryptocurrency – he wants to make the US the world leader in cryptocurrency. This means making changes at the SEC to reduce the regulatory pressure on the crypto industry (hopefully boosting demand) and has vowed to start a national Bitcoin fund. He will stop selling assets
Whether he can actually get this stuff done will depend on the outcome of the Senate and Congress races, though we also need to treat a fair amount of what Trump says with a degree of skepticism.
What happens to markets if policies are enacted
If these policies (or even weakened versions) end up being enacted, market strategists and researchers are pretty consistent on some of the investment outcomes:
- Higher inflation – there is no question, that tariffs and cuts in immigration are likely to be inflationary. Cutting immigration has the potential to increase labor shortages.
- Higher interest rates - a combination of higher inflation and increased Government borrowing (to fund the tax cuts) and Tariffs will push interest rates higher. This means investors should expect a fall in their bond portfolios
- Stronger US Dollar – higher interest rates, stronger economic growth, and tariffs are all expected to drive the US Dollar stronger against other currencies.
- Stronger US Equities – a combination of lower taxes, deregulation, and an American-First economic policy is likely to be positive for US Equity markets. Other more traditional manufacturing-orientated stock markets (eg. Japan and Europe) are likely to suffer from the American First set of policies
- Bitcoin goes higher – Trump has gone very deep into the Crypto world and has made a number of simple promises that he can keep irrespective of what happens in the House or the Senate (SEC changes). This should be positive for Bitcoin.
How do you trade this with your KiwiSaver?
This is simple. With Kōura Wealth you can direct your KiwiSaver to areas that you think will do well. To take advantage of the strategies above you can move your KiwiSaver into the Kōura US Equities Fund and the Kōura Carbon Neutral Crypto Fund. This will give you exposure to the US Stock Market, the US Dollar, and of course Bitcoin, three of the things that we expect to do very well in a Trump Presidency.
The warnings
At this stage, it is still very uncertain whether Trump will win the Presidency and what he can actually do. As stated at the beginning, it is unclear whether he will actually do what he says he will do and we are also firm believers that there is only so much that a single President can do to impact your KiwiSaver over the long run.
It is also important to point out that the markets have already priced a fair amount of this in. The US Equity market and Bitcoin have had a very strong few weeks driven by a combination of improved economic outlook and also growing confidence that Trump will win.
So if you are going to try and play the Trump trade, go in with your eyes wide open and be prepared to stick through the short-term volatility that we might see through the election.
*Kōura Wealth is the issuer of the Kōura KiwiSaver Scheme. View our PDS at kourawealth.co.nz
**The views and opinions in this video are those of Rupert Carlyon. This content is for informational purposes and should not be taken as financial advice.