Fra Citywire
Trump’s victory means a historic shift from established policies on trade, immigration, fiscal stance and healthcare.
This is according to the latest commentary from Christophe Bernhard, chief strategiest at Vontobel Asset Management.
He said high levels of uncertainty might result in slower global growth if Trump stands by plans to renegotiate key trade agreements and impose trade barriers on Mexican and Chinese imports.
‘Likewise, though unrealistic, sharp tax cuts and infrastructure spending would push up the budget deficit. At the margin, such policies should stoke inflation.’
Neutral equity stance
Bernhard said uncertainty will prevail until a Trump administration unveils its policy programme, which might differ from the candidate’s stated intentions.
As a result, the firm has a neutral stance towards equity markets and has raised cash balances over the summer.
‘Our exposure to emerging market assets are likely to face pressure while our gold position should provide some offset.’
Bernhard added that Vontobel’s team has a broadly neutral stance versus the US dollar and runs a substantial exposure to inflation-protected Treasury securities.
‘Logically, depending upon timing, we would be inclined to reduce exposure to emerging assets though advise not to cede to portfolio activism, which proves usually detrimental to performance. ‘
However he believes not all of Trump’s policies are negative for the markets, tax cuts being one of them.
Geopolitical gitters
Commenting on the current market developments Bernhard said there is a correction across equity markets, as markets were expecting Clinton to win.
He added that safe-haven assets such as government bonds and gold are up significantly.
‘Emerging-market currencies are under pressure, in particular the Mexican peso. The US dollar is weaker as market participants question the willingness of the U.S. Federal Reserve to raise interest rates in December.’
On a geopolitical level Trump’s win along with Brexit signaled a widespread disenchantment across western democracies with existing policies, he says.
‘Anti-establishment parties in Europe should not be underestimated as French and German elections are scheduled for 2017. These social and political developments are imperfectly captured by polling institutes.’
