How a Trump victory would affect the economy of Ukraine

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2016/11/09 • Analysis & Opinion

Article by: Serhiy Fursa

If the markets are wrong and Trump wins tomorrow, a “black Wednesday” awaits us. The stock exchange prices will fall sharply, the dollar will peak, and gold prices will soar.

On Monday, November 7, there was a practical celebration on the world stock markets. At least, so it seemed, given that almost all the key indexes soared. And the most important indicator was that the American S&P 500 index grew by almost 2%.

And what was it that so pleased the speculators and investors? The industrial growth in China or Japan, the employment growth in Europe, or the drop in oil prices? No, it was for an entirely different reason — election polls indicated that Hillary once again was leading Trump.

The financial markets and almost all the system players in the world economy are set against Trump. There are many reasons for this, but the basic reason is the personality of Trump himself. Hillary is not liked in the US, where she is viewed as cold and calculating. And she would lose to any other Republican. But not to Trump, whose populism frightens the elites.

As usually happens after multiple crises, the popularity of populists is growing in the world today, as was the case before World War II. The inept president of the Philippines shoots drug dealers and anyone who is in the way while confessing his love for Putin. Erdogan in Turkey is assuming the title of ruler of the Ottoman Empire, alarming his neighbors. And throughout Europe, one by one, the far-right candidates are winning. The US is not far behind; it is against the background of the same trends that Trump has been able to attract so many followers.

If Trump wins, it means that a critical mass of idiots would now be in power, a situation that usually leads to unpredictable consequences.

Second, markets really do not like administration changes in the White House. It does not matter if a Republican replaces a Democrat or a Democrat a Republican. There is a change in policy, and this unnerves the markets.

Finally, investors do not like to see power in the same hands. Now that Congress and the Senate are controlled by Republicans, the financial community is very comfortable with a Democrat in the White House.

As a result, the markets rallied when the election prediction models began to give Hillary a 90% chance of winning. Many in the markets were experiencing déjà vu. The markets behaved the same way before the Brexit vote. Then, even on election day, it seemed that the worst had been avoided. But it turned out not to be true. The behavior of the British pound in recent months clearly indicates how wrong the markets were. But the US situation is not entirely similar.

First, there is the question of momentum. It was not moving in the markets’ direction before the voting in Britain. And the number of supporters for Britain’s exit from the EU was increasing. This is not the case with the US elections. The drop in Hillary’s polls from last week has been reversed and she is moving up again. Second, the Brexit experience, which was unexpected and horrible, forced the political elites to treat Trump seriously and to do everything to avoid surprises. And they have succeeded.

As a result, if Hillary brings her campaign to its logical victory, the markets will rejoice. We might even see a Christmas rally. But in general,  her victory is already priced in and means low volatility and investor calm.

Which, however is expensive. There is a lot of money in the world, and even if the Federal Reserve is likely to raise rates with a Clinton victory, this will not have a major impact on the situation. There is a lot of cash and it is flowing to the most remote corners of the world, such as Ukraine. We simply  need to learn to accept it skillfully.

But if the markets are wrong and Trump wins tomorrow, a “black Wednesday” awaits us. The stock exchange prices will fall sharply, the dollar will peak, and gold prices will soar. And this is not because the markets fear Trump’s economic views. But because they fear his unpredictability.

Of course, the initial effect will be exaggerated. After all, US institutions significantly limit a president’s powers even if he appears to be as crazy as Trump. And later some of the losses can be recouped. But not immediately. And the emerging markets, including Ukraine, would suffer even more from a Trump victory. This increase in risk in the system always results in an outflow to reliable assets and means that the risky instruments are sold and investors flee to the US. However paradoxical this may appear, since the US would be the source of the risk.

In that case, we risk seeing more pressure on the hryvnia, though not critical, and a reduction in the economic growth forecasts for the country for the next couple of years.  The same way that we risk seeing the realization of the historical Putin-Trump embrace, even though this risk should not be overestimated. Once people arrive in the White House, they become more reserved in their communications.

But in any  case, there would be nothing good for Ukraine in this result in the US elections. Not economically and not politically. And it is fortunate that its likelihood is currently estimated at a modest 10% –15%.

Economist Serhiy Fursa is a fixed income specialist at Kyiv-based Dragon Capital. He was previously with Astrum Investment Management, Renaissance Capital, and BNP Paribas.

Translated by: Anna Mostovych
Source: Espreso TV

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  • Steve

    I gues Dragon Capital hires/employees idiots. The news IN the U.S. is showing the Stock Market is expecting a Trump win. Hello here author/Dragon Capital. I won’t go into more because I REFUSE to do the fact checking that EuroMaidan Press should be doing. But then given the last few months EuroMaidan Press is beginning to sound like an FSB propaganda organ.

    • Quartermaster

      Jim Rickards is saying the markets have priced in a Hillary win. It would seem that, like so much in this election, the news is confused. Everything is in the air at the moment, and we won’t know what is going to happen until it happens.

      • zorbatheturk

        It happened.

    • Alex George

      You really should look at the markets before posting again my friend.

      • Steve

        Typical election night market reports. Lets see what it looks like in a week. As for Asian Markets I am not surprised since the TPP was already shaky without Trump’s input.

        • Alex George

          They aren’t typical at all. Your post was wrong so stop complaining.

          “Lets see what it looks like in a week”

          You didn’t talk about in a week. You wrote: “The news IN the U.S. is showing the Stock Market is expecting a Trump win.” and that was clearly not the case. What happens in a week, a month or a year does not change that.

  • zorbatheturk

    The US has elected an assclown. What is important now is that this assclown does an immediate U-Turn on foreign policy with respect to the slimy maggot known as Vladimir Putin who has usurped power in the Kremlin. What is needed is a new Secretary of State who will face up to the neo-Soviet menace and not a wimp like Kerry.

    Stomp on Putin NOW.

    • Turtler

      “The US has elected an assclown.”

      As I have said before, better an assclown than a monster.

      “OK. What is important now is that this particular assclown does an immediate U-Turn on foreign policy with respect to the evil slimy maggot known as Vladimir Putin who has usurped power in the Kremlin. What is needed is a new Secretary of State
      who will face up to the neo-Soviet menace and not a wimp like Kerry.

      Stomp on Putin NOW.”

      And on this, we are in absolute agreement. Starting tomorrow I will be in the trenches demanding that Trump do nothing short of that.

      Since my family and I voted for him almost to a person, I have a stake in his election. And so do the majority of Pro-Ukrainian and Pro-Freedom Conservatives who ultimately elected him. I will continue to help your cause any way I can.

      And I imagine we will get massive amounts of help- however unintended- from the Bald Beast himself. People will make what excuses they will, but Putin is an evil, egotistical control freak. His behavior naturally repels even those who would like to cozy up to him.

      It happened with Obama, Clinton, and the Ukrainian Blues. I have no reason to believe Trump will be any different.

      • Alex George

        “Starting tomorrow I will be in the trenches demanding that Trump do nothing short of that.”

        What you demand will be irrelevant. Your usefulness has ended.

        “I have no reason to believe Trump will be any different.”

        Sure, and you will keep finding excuses no matter what he does . Anyway, let’;s see what actually happens. I am guessing lifting of sanctions, with no requirement for Putin to do anything in return.

        • Turtler

          “What you demand will be irrelevant. Your usefulness has ended.”

          Perhaps, but then my nuisance has just begun.

          If Trump wants to get his allies in office, his measures approved, or another term come four years (and does anybody on the planet not think he does?) he answers in part to me. Me and the rest of us. And you had better believe that we can make a stink.

          “Sure, and you will keep finding excuses no matter what he does . ”

          You haven’t read much of me, have you?

          There’s a reason I’ve spent thousands of my usual, longwinded words flogging him on even minor points, like his smearing of Cruz and the Bushes. Let alone his removal of support for Ukraine on the platform.

          If you think I exist to make excuses for the man, you are wrong.

          “Anyway, let’;s see what actually happens. I am guessing lifting of
          sanctions, with no requirement for Putin to do anything in return.”

          I am guessing not, in part because of inertia, in part because of public opposition to it, and in part because Putin will have months and months to do what he does best. Show everybody in the world with a pair of eyes how much of an uncooperative bastage he is.

          It’s easy to indulge rhetoric friendly to him when you’re in the opposition (as Trump, Obama, Clinton, and Sanders all did).

          It’s another thing when he cranks up the propaganda speakers and takes aim at you because his psychopathy, incompetence, and belligerence have left him with the usual scad of problems and he needs to find someone else to blame. That tends to make people angry.

          • Alex George

            It doesn’t take inertia to maintain sanctions, but to let them lapse.

            And yes, I have read most of your posts, hence why I wrote what I did.
            You can believe that you will make a difference and I can believe that you will be irrelevant. Each to their own.

            Anyway, let’s see what happens. If you are wrong, it is only the people of Ukraine who will suffer.

          • Turtler

            “It doesn’t take inertia to maintain sanctions, but to let them lapse.”

            This seems to be a common bit of parlor wisdom that’s been floating around, largely vis-a-vis the attempts to get the Iran and Cuba sanctions lifted. It doesn’t really hold up closely.

            And how much sanctioned missile technology has gone to North Korea over the past sixtysome years?

            Or how about firearms for Castro’s Cuba?
            Or perhaps we should talk about how the Mullahcracy of Iran is still flying decades obsolete US fighter planes and ran out of non-Venezuelan Hispanic imports because of the US Embargo on one hand and Argentina’s continuing ire?

            Sanctions can decay, but they decay incredibly slowly.And even when decayed they tend to make it a lot harder to get things than they would otherwise.

            “And yes, I have read most of your posts, hence why I wrote what I did.”

            If I believed you, I would commend you for your dedication t scroll through the terrible comment formatting on Disqus to read the 2,000~ comments I have (nonwithstanding those I have made elsewhere).

            But I don’t. Because among other things you claimed I would make excuses for whatever he did, which is flat out wrong beyond any justification given what I’ve written.

            So I won’t.

            “You can believe that you will make a difference and I can believe that you will be irrelevant. Each to their own.”

            The thing is that I have already made a difference- however small-, as the result itself shows. So there’s that.

            “Anyway, let’s see what happens.”

            Agreed.

            “If you are wrong, it is only the people of Ukraine who will suffer.”

            Don’t fool yourself.

            If I’m wrong there are going to be few people who won’t suffer, not just Ukrainians. Just ask the Georgians, Estonians, Moldavians, Poles, and Latvians….

          • Alex George

            Thanks for the obfuscation. You suggested that sanctions would NOT be lifted “in part because of inertia”. I pointed out that acutally works the other way. None of the points you have made are relevant to that.

            “You claimed I would make excuses for whatever he did”

            Yes I did, and you have.

            As I wrote, if you are wrong, it is only the people of Ukraine who will suffer. I did not deny that anyone else would, and your attempt to divert the conversation by referring to others is sickening. You know exactly what I meant – YOU will not suffer.

          • Turtler

            “Thanks for the obfuscation. You suggested that sanctions would NOT
            be lifted “in part because of inertia”. I pointed out that acutally
            works the other way. None of the points you have made are relevant to
            that.”

            Flatly not true.

            I pointed out several cases where sanctions have remained in place and somewhat effective for decades, sometimes the better part of a century (as we now see in Cuba). In large part due to inertia lasting long after initial zeal and widespread support for them have passed.

            If you’re going to try and claim that historical counterexamples are not relevant to your claim, you are the one making a statement irrelevant to the issue. Or throwing mud at a wall and hoping it will stick.

            The fact that you can’t actually refute any of the examples I presented about the inertia intact sanctions is more damning to your claim than what I can write.

            “Yes I did, and you have.”

            Lying to my face about *what I Myself Have Done* is incredibly stupid.

            And false.

            “As I wrote, if you are wrong, it is only the people of Ukraine who will suffer. I did not deny that anyone else would, ”

            Do I have to educate you on the meaning of the word “only”?

            Because nobody else made you shove that thing in your sentence. And now you’re trying to blame me for basic reading comprehension.

            “and your attempt to divert the conversation by referring to
            others is sickening. ”

            Your attempt to deny deny deny things up to and including the DEFINITION OF A WORD is sickening, stupid, and ultimately pitiful.

            “You know exactly what I meant – YOU will not suffer.”

            Firstly jerkwad: I’m not a mindreader, so I don’t pretend to know what you “really” mean. I have to use the tools of communication like everybody else. Including words.

            If your message isn’t clearly understood, then it is your fault. Especially because you’re now claiming the word “only” means something other than what it means.

            To use some gamer slang, “Git Gud” at writing.

            And secondly: don’t kid yourself: most of the world will suffer if Putin truly ascends in one way or another, whether it’s genocide at his hands, harassment or interdiction as his thugs throw foreign nationals around, or simply losing foreign aid like much of the third world has.

            I may not be fighting in the trenches like Ukrainian heroes and heroines are or under the jackboot of the FSB. But that’s because he has not made as much headway.

            And if his warmongering causes a major collapse in the world economy, I will also be on the receiving end.

      • zorbatheturk

        I am warming to the idea of Trump. American greatness requires a strong military and low oil prices, both of which are bad news for Putin. As for China, it has run a mercantilist trade policy unopposed since it joined the WTO. If the Chinese bubble bursts, it will take RuSSia and the BRICS down with it. Good. Financial rationality needs to return. Let’s hope Putin and Assad are stopped in Syria too.

        • Turtler

          “I am warming to the idea of Trump. American greatness requires a strong
          military and low oil prices, both of which are bad news for Putin.”

          Indeed. Now we’ll see if Trump warms to the idea of actually being a competent or responsible President, let alone the upcoming leader of the free world.

          I’ll be honest and say I have my doubts. So I’m keeping my powder dry and heading up my cattle prod.

          “If the Chinese bubble bursts, it will take RuSSia and the BRICS down
          with it. Good. Financial rationality needs to return. Let’s hope Putin
          and Assad are stopped in Syria too.”

          Agreed absolutely.

  • Alex George

    Well the drop in markets, hike in gold etc have happened after the Trump vicotry was announced..

    But this publication is about Ukraine. What next for it? That depends on whether Trump cozies up to Putin as he has previously indicated. Who knows what he will actually do, given that he changes positions like some some people change clothes?

    But Ukraine stopped Russian aggression in 2014 without US help, and its not going to give in.

  • Mephisto

    Let us see what happens. I did not wish for Trump to get elected and I do not expect anything positive from him. Thus he can only surprise me in a positive sense. I expect
    – lifting of sanctions against Russia
    – American isolationism, hence clearing world state for Russia and China
    – worsening of relationships with EU
    – failure to repair American economy
    – creating deeper rifts and divides within American society
    – destroying anything positive Obama has done, such as Obamacare. As an European MD, I might have a different perspective, but the US healcare system is a disaster – so many uninsured people, extremely high healhcare costs etc. – and Obama was at least going in the right direction, but he was blocked by the Republicans

    I am not criticizing the Americans. We (Czechs) have elected a similar moron for president (Milos Zeman)
    https://euobserver.com/opinion/133789
    there is simply a segment of people in each nation, who are just too dump and fall for cheap propaganda by populists.