Surprise Donald Trump victory could lead to market volatility, huge sell-off in US: Experts

Some polls show that Hillary Clinton's lead over Trump has narrowed after the FBI's decision to reopen its probe into the former's emails

A suprise Donald Trump victory in the US presidential elections would lead to volatility and uncertainty in the markets, perhaps even a large sell-off in US markets, feel market experts. 

Democratic presidential candidate Hillary Clinton's lead over Republican rival Donald Trump has narrowed, with Clinton leading by just 3.1 percentage points in the RealClearPolitics' average of all major polls, according to media reports. 

While the Bing average of national polls shows Clinton is leading by five points and she still has a 82 per cent chances of winning elections according to Bing political predictions, the polls have been tightening after last week's decision by the Federal Bureau of Investigation (FBI) to reopen its investigation into a fresh batch of emails linked to Clinton.

According to reports, two of the three polls, carried out after the FBI announced its decision on October 28 to reopen its probe into her alleged email scandal, showed Clinton leading Trump by three percentage points, while in another (IBD/TIPP), she is leading the real-estate mogul by just one percentage points.

With the race unexpectedly tightening, market experts have weighed in on what a surprise victory for Trump would mean for the markets. 

"Markets have already factored in a Clinton victory, so her win will result in marginal gains for global indices. However, there might be a lot of volatility and uncertainty if Trump comes to power as he is considered a maverick and it will take some time for market participants to digest his policies," said UR Bhat, managing director, Dalton Capital Advisors (India). 

Emerging markets, like India, might see an impact on inflows. 

"Inflows into emerging markets such as India will be negatively impacted since foreign funds might want to reduce allocation to riskier assets in uncertain times. That said, I don’t expect major upheavals in the long-term as the growth and interest rate trajectory of the US is unlikely to be impacted," Bhat added.

"The market may see short-term volatility based on the expectations that are being factored in versus the actual electoral outcome. The global markets are expected to stay volatile in the run-up to the event. Having said that, I feel the impact on India will be neutral," said A Balasubramanian, CEO, Birla Sun Life Asset Management.

After Clinton's performance in last month's three presidential debates and the controversies surrounding Trump, particularly regarding a 2005 video in which Trump made lewd remarks against women and the coming forward of women who alleged that Trump had made unwarranted sexual advances against them, had set Clinton on what seemed like a clear path to the White House. 

However, according to reports, the new probe led to a weekend of scrambling by both Clinton and Trump and has put the US presidential race in uncharted territory. 

If Trump does win, experts feel the US market might see a huge sell-off. 

"There might be excessive volatility if there is an upset in case Trump comes to power. There is a possibility of a huge sell-off in the US markets. For the Indian markets, too, this might be uncharted territory and we are likely to follow global cues. If Clinton wins with significant majority, I expect a good upmove in the near term," said Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services. 

Asian markets would not escape such an upset well either, with a Trump victory being a "negative for Asian shares", said Shane Oliver, head of investment Strategy, AMP Capital. 

"While some of Trump’s economic policies could provide a fiscal and supply side stimulus to the US economy, a Trump victory is likely to be initially negative for shares and favour safe havens like bonds and the US dollar as investors would fear his policies on trade in particular," added Oliver.