Summary of key points

 

  • The investment world may be at a pivotal point. Trump has triumphed, using a strategy of being a disruptor and not accepting the rules of the game by which politics is practiced in the USA.
  • In his direct appeals to voters Trump has been light on policy detail but has said that he will:
    • Cut corporate taxes;
    • Spend big on infrastructure;
    • Renegotiate foreign trade arrangements. The medium term consequences are likely to include:
    • Bigger Federal deficits over the next four to six years and much more issuance of US long term bonds leading to yields being higher than they would otherwise be. – Faster economic growth and higher inflation.
    • Faster growth in earnings per share of US domestically oriented companies.
    • Slower growth in world trade with adverse impacts on countries such as China and eventually Australia as well as on earnings growth of multinational firms including those based in the USA.
    • China may seek to offset the effects of any global trade slowdown via increased infrastructure spending that in turn may boost iron ore and coal prices, in addition to the already supportive framework of fiscal deficits, monetary policy and a tendency to weaken the currency

 

 

  • In the shorter term the impact of having an apparently erratic and idiosyncratic leader of the USA may well disturb financial markets in general and equity markets in particular. Volatility may well continue for some weeks or months to come.
  • Given the more positive medium term prospects in some areas, any shorter run declines in the equity markets may eventually prove to be an opportunity to accumulate equities at better than usual prices, albeit on a selective basis.
  • Central banks are likely to slow any planned rate increases, especially the US Federal Reserve. This may extend for a longer period providing added support to equity prices for longer than was expected.
  • In summary be watchful and patient in coming weeks but not lose sight of an emerging opportunity to redeploy cash into equities at what may be favourable prices given a change for the better in the medium term economic outlook.

The investment world may be at a pivotal point. Trump has triumphed, using a strategy of being a disruptor.

 

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