It’s not looking good for US presidential hopeful Donald Trump, as he falls further behind in the polls and loses support from Republican Party leaders. But he has never really needed the establishment’s blessing for anything, and defied the odds at every stage of his rise to becoming the party’s nominee.
Investors would be wise to consider what a Trump presidency would mean for their portfolios, devising trade ideas based on his policy proposals. Granted, Trump’s statements during the campaign are often vague, contradictory, or of dubious legality. Still, campaigns traditionally offer a pretty accurate preview of how presidents govern—Politifact says that 70% of Barack Obama’s campaign promises have been kept, in some form.
But like financial advisors warn, “past performance does not guarantee future results.” With that in mind, these are are the top “Trump trades,” according to analysts and investors:
🇲🇽🇷🇺 Short the Mexican peso and go long the Russian ruble
This is the ultimate Trump trade, taking advantage of two of the candidate’ most vocal policies. Trump plans to build a wall along the Mexican border, deport all undocumented immigrants, and scrap NAFTA. Needless to say, this would be bad news for the Mexican economy. At the same time, Trump has showered praise on Russian president Vladimir Putin, suggesting that he could ease up on the Western sanctions that have been weighing on the Russian economy. A bet on this uncommon currency pair could pay dividends if Trump follows through on his promises.
🇨🇦🇯🇵 Short the Canadian dollar and go long the Japanese yen
JPMorgan analysts recommend shorting the Canadian dollar versus the Japanese yen. Trump’s urge to end NAFTA would also hurt Canada, making the “loonie” a loser. The US is Canada’s biggest trading partner by far, purchasing $338 billion of Canadian goods and services last year. The yen, at the same time, could appreciate because it’s generally considered a safe haven that investors buy during times of turmoil. This trade is also much more liquid than the ruble-peso pair, with some $7 billion changing hands every day.
🇰🇷 Short the Korean won
Another casualty of Trump’s protectionist streak could be the recent trade agreement between Korea and the US, signed in 2012. After Trump called it a “job-killing trade deal,” the Korean won—and other currencies of export-dependent Asian countries—could come under pressure, according to strategists at Dutch bank ING.
💊 Buy pharmaceutical companies
Companies such as Mylan, Valeant, and Turing saw their share prices tumble when Hillary Clinton accused them of “predatory pricing.” Trump doesn’t seem to share similar concerns, and so the pressure on drugmakers to lower prices on popular medicines could be lifted.
🚔 Buy private prison companies
The shares of private prison operators collapsed earlier this year, after the US Justice Department said it would stop using for-profit prisons for federal inmates. If Trump wins, it could be time to snap up a bargain. Trump’s government may need the extra space—his plan is to deport all 11 million undocumented immigrants, and the largest immigration detention centers in America are run by these companies.
🇮🇱 Buy Magal Security Systems
Trump says that Mexico will pay for the new border wall, but who’s going to build it? This Israeli company has its eye on the job, according to Bloomberg. Magal Security Systems, which fenced in the Gaza Strip, is currently bidding for a big contract to build a wall on the Kenya-Somalia border. If Trump wins, the Mexican border contract would be another obvious target.
🚀 Buy defense companies
This trade is appealing regardless of who wins the election, according to Jeff Bush of The Washington Update. Both Trump and Clinton are likely to increase defense spending, compared with Obama. Bush recommends companies with standoff strike capabilities (drones and guided missiles), missile defense systems, and cyber security. Companies with big government contracts already in place include Boeing, Lockheed Martin, and General Dynamics—this iShares ETF holds all these big names, and more.
📋 Buy Descartes Systems Group
This Canadian company gets a boost from any increase in protectionism and border controls, so Trump’s aversion to free-trade deals could be good for their bottom line. Descartes makes it money from processing the thicket of security-related documents that companies must fill out for goods they ship across borders. It also runs a global “do not ship” database, which flags addresses with suspected terrorist ties.
“Any increased protectionism that’s going to increase the demand for security filings, Descartes will benefit,” says Ralph Garcea, an analyst at Cantor Fitzgerald. It’s one of his top stock picks.
🔫 Sell gun stocks
A Trump presidency could be bad news for gun companies, at least in the short term. Fears of stricter gun-control laws have traditionally sparked a surge in gun sales, like after Obama’s electoral wins in 2008 and 2012. Their share prices could suffer if investors aren’t as nervous about changes to the law under Trump.
Chris Krueger, an analyst at Lake Street Capital Markets who covers Smith & Wesson, also notes that gun companies have been having a good year, with sales increasing in response to mass shootings and terrorist attacks.
⛽️ Sell oil companies
Trump’s willingness to deregulate energy exploration and encourage more domestic production could backfire for oil-company stocks, according to Andy Goldberg at JPMorgan Asset Management:
More energy production in and of itself in an environment where we are still working through an energy glut might actually hurt energy prices, which might hurt profits and hurt the market. Even though this is clearly a pro-business policy stance, the impact of unintended consequences people should be more mindful of.
✨ Buy gold
It is an understatement to say that Trump is an unconventional presidential candidate. This alone is enough to sow uncertainty about the fate of the US economy during his administration. Given that he’s trailing in the polls, a Trump win is underpriced by the markets—if, against the odds, he pulls off a victory, traders’ first instinct may be to scramble into this traditional haven asset.