25th May 2017

Investec Wealth & Investment: Trumpeachment

Admittedly, impeachment was high on the agenda in Brazil last year (and might be back on again soon), but threats to impeach US President Donald Trump carry greater weight. Impeachment is a word we all recognize but might struggle to define exactly. It is the process by which high officials are charged with whatever misdemeanour they are accused of committing, but the key thing is that it is initiated through the legislative system rather than the criminal justice system. In the US a majority vote in the House of Representatives is required for the trial to proceed to the Senate, where a two-thirds supermajority is required to find the defendant guilty. There has been no such development in the UK since 1806, but many of you will remember Bill Clinton’s impeachment in 1998. He was the second US president to be impeached, the other being Andrew Johnson in 1868. Neither were convicted. Richard Nixon infamously jumped before he could be pushed. So how does a potential impeachment of Mr Trump affect us as investors?

First, we need to put these events into perspective. Trump is, to say the least, not very popular, so even the smallest divergence from the straight and narrow is going to elicit calls for his head. Furthermore, media outlets, which tend to be liberally biased, are only going to whip up the storm even more. I have commented in the past about how the media has to shout louder than ever to make itself heard in a crowd, and something like this is going to take it to fever pitch. At the time of writing (Friday afternoon), there has been insufficient evidence for us to call this one way or the other, but Mr Trump’s immediate response suggested that he intends to ride it out. The market’s initial reaction was a little less sanguine, last Wednesday being a proper “risk off” day, the first we have seen for a while (somewhat ironic given that markets were so pessimistic about his potential arrival in the White House last year). That reflected a combination of factors: the uncertainty created by the political events, which effectively raised the risk premium required by investors; and the fact that this was seen as a good excuse to take profits after such a long period of low volatility. You will recall that we have been concerned that a setback of some sort was overdue, but were struggling to predict the timing or catalyst.

Investment Commentary, Investments, DFM, DFM