With Donald Trump’s victory in the US presidential elections inNovember 2016, the Republican Party succeeded in consolidating control over the White House, the Senate and the House of Representatives. This stoked expectations that meaningful legislation and reform would soon follow, in contrast to the troubled partisan years of the Obama administration when neither party was in control of all three arms of the government. However these expectations have rapidly faded over the last few weeks.
The Trump reflation trade may have lost some of its shine during the quarter, but any disappointment was more than overshadowed by strong global data as exports and production continued to gather pace. In fact, fading enthusiasm for Trump’s ability to execute has arguably served as a tailwind for Emerging Market (EM) assets in the form of a weaker dollar and moderating long term rates.
2016 may best be remembered as the year in which Trump won and the world changed. The question becomes which reforms will take centre stage.
Donald Trump has won and the world has changed. A real estate developer cum reality TV star will soon be the leader of the free world.
Emerging markets (EM) have endured strong adjustments in commodities and currencies that coupled with reforms makes a good case for better growth ahead. Still, it will take time for EM to navigate to more stable sources of growth, requiring relative stability through the delicate transition.
As we enter the final quarter of 2016, concerns around political risk are at an uncomfortable level. October saw further volatility in the UK Pound, as negotiations around Brexit drove the currency to its lowest level in over 30 years.
Since the 2008 financial crisis, markets have become accustomed to central banks calling the shots. Investors eagerly await each central bank meeting in the hope some new form of monetary policy chicanery can help propel markets higher.
Another summer has passed in the northern hemisphere and any Brexit-related jitters appear a distant memory. Global equities have rallied almost 10% since the June lows, with most markets now in positive territory for the year.
We expect a raft of populist policies to appease the disaffected masses whose voice had not been given attention until Brexit. What is clear is that markets currently place the level of possible success at zero. Defensive trades are more crowded than ever.
The UK's late June vote in favour of 'Brexit' was initially read as a deep negative, particularly given that markets were priced strongly in favour of a 'Remain' vote. However, after brief reflection, markets outside the region saw a rally, with risk asset performance more than making up for Brexit losses. Emerging markets have been a primary beneficiary...