US election: Donald Trump’s surge spooks world markets

Global markets have been jolted by fears of an upset victory by Donald Trump in next week’s US presidential election.

Republican US presidential candidate Donald Trump campaigns in Wisconsin.

Australian and global markets have been jolted by fears of an upset victory by Donald Trump in next week’s US presidential election, amid warnings that the financial fallout of a Trump win could be bigger than Brexit.

More than $18 billion was wiped off the value of Australian stocks yesterday and the dollar tumbled after investors were ­rattled by a key US poll that put the Republican candidate one point ahead of his Democrat rival, Hillary Clinton, for the first time. Other polls still have Mrs Clinton slightly ahead but the sharply narrowing contest has forced investors around the world to reappraise their long-held ­assumption of a Clinton victory.

“A Trump presidency would bring about the biggest changes in many decades in existing US ­arrangements on everything from taxation policy, to trade policy, ­social spending, immigration and geopolitics,” Westpac’s strategists said yesterday. “We believe a Trump win has larger long-term global ramifications than Brexit.”

Momentum is firmly with Mr Trump in the wake of the FBI’s shock decision to reopen its investigation into the Clinton email scandal.

An ABC News/Washington Post poll on Tuesday showed Mr Trump had a one-percentage-point lead over Mrs Clinton for the first time, while the RealClear Politics average of polls saw Mrs Clinton’s lead dwindle to a wafer-thin 2.2 per cent, down from 5 per cent only a week ago.

Investors were shocked by the latest polls, with Australia’s benchmark S&P/ASX 200 share index falling 1.2 per cent to 5229 points yesterday, putting it back into negative territory for the year. At one point it fell 1.6 per cent, hitting a seven-week low.

Asian shares were also sold off yesterday as Japan’s Nikkei 225 dived 1.8 per cent. The Hang Seng index fell 1.4 per cent, South Korea’s KOSPI index fell 1.4 per cent and China’s Shanghai Composite slipped 0.5 per cent.

The Australian dollar is also lower against the US dollar on the back of US presidential election jitters. It was trading at US76.31c late yesterday, down from US76.54c on Tuesday.

But that’s nothing compared with the storm that could be unleashed on financial markets if Mr Trump continues to defy the sceptics and is elected president next week. Mr Trump has all but promised a trade war with China, Australia largest trading partner, if he is elected.

Economists at Westpac led by David Goodman said the outcome would be a bigger deal than Britain’s vote to leave the European Union, which rocked global ­financial markets in late June and early July, leading to a further delay in US ­interest rate hikes.

Brexit wiped $50bn off the Australian sharemarket.

“Longer term, our baseline view is that a Clinton win would be more supportive for both ­immediate and long-run US growth prospects and thus also ­equity markets,’’ Westpac said.

“This also implies higher US yields, including the Fed funds rate. The US dollar is likely to be higher in 2017 under a Clinton ­administration.”

Wilson Asset Management chairman Geoff Wilson is tipping a 1000-point fall in the blue chip Dow Jones Industrial Average in the event of a Trump win, implying a potential slide of close to 6 per cent. Under such a scenario, Mr Wilson says the key will be to pick stocks that could benefit from lower US tax rates, rather than those that could be hurt by less globalisation and trade under a Trump presidency.

“It’s obviously negative for globalisation, global trade, but in theory he’s pro-business,” Mr Wilson said. “The scary part is they would be giving the steering wheel of the largest economy to a lunatic.

“But the US would still be the largest consumer globally, so ­assuming he is pro-business, that should be good for some stocks.”

The bigger fear is that a Trump victory would likely also mean a Republican majority in both the House of Representatives and the Senate, ­providing the freest hand for a president since Barack Obama’s 2009-10 window of full Democratic control.

“This is one of the key factors in our view that a Trump win would have very significant long-term global implications,” Westpac said.

“His supporters will expect him to deliver on his promises and Democrats will not have the numbers to block him in congress.”