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Is Trump as much a game changer as markets think?

“Market movements were quite clear, with emerging markets and utility stocks down and cyclicals up,” said David Karni, head of fund selection at BCC Risparmio & Previdenza, speaking at a panel debate at the Expert Investor Pan-European Congress in London on Thursday.

In the weeks following the election results, Karni has identified two “long-term themes” that could benefit investors’ portfolios. “If there’s one thing in common between Clinton and Trump, it was infrastructure. There is a cross-party consensus that there’s a need for infrastructure in the US,” he explained. Financials is the second theme Karni suggests, as banks and insurers could profit from deregulation and rising interest rates.

Infrastructural optimism

Trump’s election has made Joachim Klement, head of thematic equities at Credit Suisse AM, “more optimistic” about US equities, increasing his allocation from underweight to neutral on the day after the election. Klement agreed with Karni that infrastructure projects would provide a massive boost to many sectors of the economy. “For the next 12-18 months we have become more optimistic about sectors such as steel, construction and cement that will benefit from infrastructure investment.”

Gabriel Bertholdi, who succeeded Klement as head of asset allocation at the Swiss consultancy Wellershoff & Partners last year, warned that investors risk getting carried away.

Irrational exuberance?

“We have to distinguish between the short, medium and longer term. For the very short term, meaning the next couple of months we became a bit more positive, just because sentiment has turned. And the US economy is fine, no matter wat Trump will be doing. That won’t change. But maybe we now have overoptimistic investors. This may create a risk in a year’s time,” he said.

After all, we are not at all sure whether Trumponomics is really going to succeed. For now, there are more question marks than answers. Uncertainty is going to prevail, not least because Trump’s plans have yet to be spelled out.

To give just one example: in his election manifesto, Trump promises his $1trn infrastructure programme will be ‘deficit-neutral’, promising ‘maximum flexibility to the states’. In his ‘contract with the American voter’, however, this has been changed to ‘revenue-neutral’, whatever that may mean.

Another factor that has so far been ignored by markets is Trump’s protectionist rhetoric, probably because it conflicts with Trump’s aim of prioritising economic growth. In this respect, risks are therefore also to the downside. “By the middle of next year, there will be room for disappointment,” concluded Bartholdi.

Here you can see a slideshow of photos taken at the Expert Investor Pan-European Congress.

 

 

Part of the Bonhill Group.