Why Singapore's shares could benefit from Trump – in 2019

If history is any guide, under US President Donald Trump, Singapore’s stock market won’t post returns worth writing home about… until 2019. But: given the unpredictability of Trump so far, history may not be prologue at all.

How US election cycles affect Singapore's stock market
In the past, when a candidate from the Republican party of the US (such as Donald Trump) has become the country’s president, Asia’s markets overall have performed well during the first year of the term, rising just over 15% on average. Returns for Singapore have been a lot less exciting, at less than 5%.

But the real fireworks have begun during the third year (which will be 2019) of a Republican president’s four-year term. During this year the MSCI Asia ex Japan Index has seen average returns of nearly 38%, whilst Hong Kong’s stock market has risen nearly 35%; Singapore, 28%; and Malaysia, 25%.

For our purposes here in the graph above, we break the election cycle down into four periods:
1. Post-election year: The first calendar year after the US presidential election. For the current cycle, it’s this year – 2017.
2. Midterm: The second year. This is 2018 in the current cycle.
3. Pre-election: Year 3 of the president’s term, which is also the year before the next election. This will be 2019 in the current cycle.
4. Election year: The fourth year of the president’s term, and the year in which elections are held. 2016 marked the election year in the previous cycle, and 2020 will be the current cycle’s election year.

However the sample size for the Asian market results is small. The indexes that we’re using – and Asia’s stock markets – haven’t been in existence for many four-year American presidential cycles. And broken down by the two major US political parties, the sample size is even smaller; for instance, the MSCI Asia ex Japan Index has only seen seven US presidential election cycles, covering three Republican presidents and four Democratic presidents.

The small number of data points means that historically unusual periods (like big stock market losses during the global economic crisis in 2008, or particularly strong years for the stock market) have a very big impact on average returns.

Why would American politics affect Singapore's stock market?
Only rarely does American foreign policy towards Asia – or Singapore in particular – have a direct impact on stock market performance in Asia. Far more important is the role of American politics on US market movements, and on global stock market sentiment – and therefore also on Asian markets.

This may play out in a much larger way in smaller, less liquid markets in Asia (where a smaller absolute amount of funds invested or withdrawn can have a far greater impact than in bigger markets). So positive or negative sentiment in the US with respect to American policy, and presidents, might impact Asian markets more than others.

In recent months, Donald Trump’s statements and tweets have had a big impact on a range of US stocks and sectors. Earlier this month, for example, the market value of nine large US pharmaceutical companies lost almost US$25b in value after he criticised the industry press conference. And his opinions and anticipated policies regarding China – threatening to label it a currency manipulator, and launch a trade war with China – have also pressured Chinese, and Asian, share prices in recent months.

In light of Trump’s unorthodox policies and positions, stock market performance patterns may be completely different over the next four years from the past. So the solid returns posted by Singapore’s stock market during the third year of the terms US presidents from the Republican part may not come to pass this time around.

It doesn’t have to be that way for you, though. To learn more about how investors in Singapore can profit from a Trump presidency, click here.

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