November 2016

• In response to the ubiquitous head scratching as to what Trump has in store for the US and the rest of the world, we probed the exceptional network of The Monthly Barometer. The truth: everybody is clueless because Trump policies are unknowable. The optimists, hopeful that the President-elect’s worst instincts will be constrained by (1) the realities of policy and (2) the institutional checks and balances embedded in the US constitution, claim he’ll end up doing good things. The pessimists focus on his transactional and erratic traits, fearful that the US could descend into unsolvable conflicts of interest while the President brings the liberal order to a chaotic end. The only certainty: decision-makers have to brace for many surprises and high volatility.

• Trump’s victory constitutes a major game changer, not only for the US, the global economy, international politics and global governance, but also for the financial markets. To a considerable extent, their path will be determined by what happens in the realm of politics. Trump’s victory, Brexit, the global rise of authoritarian leaders: these are all tipping points – the intertwined effects of which will make the world a much messier place. The broad contours of global populism are: less globalization / more retrenchment, less outsourcing, more protectionism, less immigration, more government spending.

• This so, what are some investment implications of a Trumpian world? (1) For a while, risk assets (particularly equities in the defence sector) will benefit while bonds are hammered as expansionary fiscal policies push up US growth and real interest rates; (2) The prolonged appreciation of the USD will provoke stresses in emerging markets, especially those with a large current-account deficit (Turkey, South Africa, etc.) and the commodity exporters; (3) Export-oriented, outsourcing multinationals and tech companies will be at the mercy of protectionist measures and in the crossfire of politicians – a Trumpian world favours domestically oriented companies and SMEs. . .

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