With America going to the polls in one of the most divisive presidential elections in recent memory, the uncertainty surrounding a possible Trump administration has some in London’s financial community casting their minds back to early summer.
Rob Boardman, the European chief executive of the agency broker ITG, said: “If there was an unexpected Trump win then I think you might see volatility and volume of the same order that we had in Brexit.”
That bout of volatility saw new trading records set in Europe. The region’s largest stock exchange operator, Bats Europe, handled a record €29.3 billion of trades on June 24, while Mark Pumfrey, the head of Liquidnet in Emea, told FN at the time that the buyside-focused dark pool operator had seen “by far” it biggest day for trading.
Hartwig Kos, co-head of multi-asset and a portfolio manager at Syz Asset Management, said that, like Brexit, markets are not prepared for Trump and did not rule out falls in the equity markets of as much as 20%. Kos said: “You had Brexit and no-one was believing Brexit could ever happen, you had a sell-off for two days and markets went up again, it is difficult to say but you will definitely get a shock in the first instance.”
An equity capital markets banker added: “If Trump wins everyone from debt to equity thinks the market will be in chaos with an initial post-Brexit like sell-off. “
For exchanges and agency brokers like ITG, which make money by sitting in between buyers and sellers of securities, the trading that such volatility brings is good for business. For others in the City, including investment bankers working in the capital markets and advising on M&A deals, the possibility of it spreading into Europe’s markets is less welcome.
European ECM activity flat-lined in the aftermath of the Brexit vote and, despite signs of a pick-up in the late summer, remains down by around a third in value terms compared with a year ago, according to Dealogic.
Leading equity capital markets bankers are wary of what a fresh bout of uncertainty over economic policy would mean for markets on both sides of the pond. The head of UK ECM at one large investment bank said: “I think the key point is around the markets’ desire for clarity and certainty. Markets have a better handle on life under Clinton versus Trump.”
The point was echoed by Boardman, who said: “Markets, companies and economists have a much greater sense of what Hillary stands for and I think she’s likely to be more predictable. That aids companies making investment decisions, it aids investors making investment decisions as well.”
Another senior ECM banker said people “will be perturbed by the fact the wild man is in the White House”. He added: “He’s pro-business and low taxation, so if he was normal you’d think he’d be good.”
While the equity markets remain subdued, big-ticket M&A is booming – the last week of October being among the busiest on record. But senior bankers speaking to FN were unanimous in their predictions of what a Trump presidency would mean for dealmaking.
The head of European M&A at one large bank said simply: “Hillary positive. Trump negative.”
A senior financing banker added: “It feels an anti-globalisation, introverted Trump would be bad for cross-border M&A, while Clinton would be more of the same and bring comfort to the markets. Donald Trump is an unknown, like Brexit, and that as we know has been bad.”