'Bullish' economic outlook for Trump's America but not emerging markets

The likelihood of tax cuts under US president-elect Donald Trump should be positive for US equities, investment commentators say.

Others warn inflation will be higher in 2017, with growth boosted by more government spending and tax cuts.

Trump managed his presidential campaign like his family business, relying on his third-generation adult children Donald, Ivanka and Eric, and his son-in-law, Jared Kushner, to run it, The Economist noted. It will be interesting to see if he runs his administration like a family business as well.

Jonathan Bell, chief investment officer of London-headquartered investment office Stanhope Capital expected Trump to introduce legislation designed to encourage companies to repatriate money which could be used for investment, share buy-backs, or dividend payments. Trump was also talking about increasing defence and infrastructure spending, Bell said.

“However, the future for long-term interest rates remains key to understanding the direction of asset prices. In the short term, expectations of an interest rate hike in December have reduced and this may be viewed positively by equity markets, but we still expect interest rates to rise in 2017 and are concerned that inflationary pressures could result in a significant rise in bond yields.

Trump has also made comments regarding a lack of commitment to debt repayments that may eventually spook markets.

“For this reason the beneficial impact on equity prices of a fiscal boost could be offset by caution regarding the outlook for bond yields.”

In terms of equity sectors, Bell said healthcare stocks have bounced, “in relief that Hillary Clinton will not be targeting healthcare pricing (the sector had underperformed over the past year in anticipation of a Clinton victory).”

Bell said construction companies and others able to benefit from increased infrastructure spending should also react well to the election result, as would companies with large offshore cash deposits. The defence sector could also be a beneficiary and financials may benefit from loosening of the Dodd-Frank regulations, he said.

“We have been concerned with the slowdown in global trade for some time. Trump's success coupled with June's Brexit vote are steps on a road to greater trade protectionism, which is perhaps one of the biggest threats to global growth.

“Trump's policies will almost certainly be negative for Mexico but they could also damage growth in China and other emerging markets.”

David Kohl, chief currency strategist and head economist Germany at Julius Baer, Switzerland's third-largest wealth manager, said Republican dominance of the next US government increased the likelihood that inflation will be higher in the coming year, and even growth might receive a boost from more government spending and tax cuts.

“We adjusted our US growth forecast to 2.4% in 2017 from 1.9% previously, and our inflation projection to 2.2% from 1.8%. Interest-rate hikes by the Fed are hence more likely to happen, which supports our bullish view for the US dollar,” Kohl said.

“At the same time, US Treasury yields should end the next year higher than previously expected. We expect 10-year Treasury yields at 2% at the end of 2017, up from 1.8% forecast before.

“The economic impact of Trump's victory in the US will lead to higher inflation, higher growth, and supports our bullish US dollar outlook.”

Do these commentators reflect your views or do you have different predictions? Email: fb@campdenwealth.com