Wall Street Rides the 'Trump Trade'... Betting on Tech Stocks, Strong Dollar, and High Interest Rates

Increase Asset Allocation with Potential Benefits if Trump Wins

With the U.S. presidential election just two weeks away, Wall Street investment firms are increasing their exposure to assets that would benefit from former President Donald Trump's victory, the Wall Street Journal (WSJ) reported on the 22nd (local time).

According to the report, Dan Loeb, the founder of the well-known hedge fund Third Point, recently sent a letter to investors stating that he is adjusting the allocation of investment assets to benefit if the November election results in a Republican victory. As of the end of last month, Third Point, which manages $11 billion (about 15 trillion won) in assets, held stocks primarily concentrated in the technology and utility sectors, including Amazon, TSMC, PG&E, and Covest.

[Image source=Reuters Yonhap News]

He said, "I believe Trump's America First agenda will drive up prices in domestic manufacturing, infrastructure spending, and certain raw materials and commodities," emphasizing, "Toning down the antitrust stance of Joe Biden and Kamala Harris and easing regulations across industries is the way to boost productivity and corporate activity."

Mark Dowding, Chief Investment Officer (CIO) of the fixed income division at RBC BlueBay Asset Management, which manages $130 billion in assets, has increased bets on the rising dollar value and bond yields. He believes that Trump's imposition of heavy tariffs will push up import prices, sustaining a high-interest-rate and strong-dollar environment. Additionally, if tax revenues decline due to various tax cuts proposed by Trump, increased bond issuance to cover fiscal deficits could further drive up bond yields.

Dowding confirmed recent meetings with U.S. government officials and lobbyists, stating, "I was surprised by how confident Republicans are about this election, more than I had thought. After hearing their perspectives, I realized the election is leaning much more toward Trump than expected."

Recently, there has been a resurgence of the "Trump trade," where asset prices related to former President Trump are rising. The stock price of Trump Media & Technology Group (TMTG), the parent company of the social networking service Truth Social owned by Trump, surged about 10% that day. GEO Group, a private prison company considered a beneficiary of anti-immigration policies, has risen 21% this month. The dollar index, which measures the value of the dollar against six major currencies including the euro and yen, rebounded from a low of 100.157 last month to around 104.15 currently. U.S. Treasury yields are also on the rise.

Temos Piotakis, Global Head of FX and Emerging Markets Strategy at Barclays, said, "The election has become a much stronger force moving the markets," noting that the recent declines in the Chinese yuan and Mexican peso are part of the Trump trade. Currently, former President Trump has pledged to impose a universal tariff of 10-20% on all imports worldwide and an ultra-high tariff of 60% on all Chinese imports.