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Trump's effect on UK special relationship

This article is part of
Guide to President Trump's impact on investments

Trump's effect on UK special relationship

US presidents and UK prime ministers have made much of the 'special relationship' between the two countries.

But with Brexit talk, protectionism and a new President being sworn into office in January next year, what sort of 'relationship' will the UK have in future?

Political questions aside, there are important financial relationships, such as currency movements, merger and acquisition activity, US companies listed and operating in London (and UK companies listed and operating in America).

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Not to mention the ripple effects caused across the UK financial system through correlation to events in the US, as already evidenced when President-Elect Donald Trump's speech caused UK gilt prices to increase and defined benefit pension transfer values to fall. 

In his speech, the full text of which can be found on our sister newspaper's website FT.com by clicking here, Mr Trump said: "We have a great economic plan. We will double our growth and have the strongest economy anywhere in the world.

"At the same time, we will get along with all other nations willing to get along with us. We will be. We’ll have great relationships. We expect to have great, great relationships."

Analysts and commentators agree Mr Trump's presidency will seemingly be good for risk assets globally and less so for fixed income.

However, how this will affect the UK markets is less certain, although there have been some predictions based on his current policies.

Case for UK equities

According to John Vail, chief global strategies for Nikko Asset Management, although Mr Trump's policies appear to be "pro-business, especially regarding taxes and less regulation", it is unlikely that risk markets will "respond well to his election for a while."

Indeed, the FTSE 100 had initially opened 2 per cent down on 9 November as the news broke that Mr Trump was heading for the White House, but recovered by the end of the day, continuing its general upward trend.

A week after the US election result was announced, the FTSE 100 was trading at 6,749.72, slightly down (0.67 per cent) on its opening but still 9.82 per cent up year on year.

Laith Khalaf, senior analyst for Hargreaves Lansdown, comments: "Initial market reaction was a short intake of breath, followed by a shrug.

"The reaction of the UK stock market was much more muted than in the immediate aftermath of the Brexit vote."

Sectors which look to benefit from a Trump presidency include mining companies, which have already seen strong rises on the FTSE, as well as pharmaceutical companies. 

Mr Khalaf claims these increases were down to the rising prices of commodities and the relief of pharmaceutical analysts now that proposed Democrat attacks on drug pricing were "no longer in the ring".