Ahead of Donald Trump’s inauguration as 45th president of the United States of America on 20 January 2017, Didier Saint-Georges, managing director and member of the investment committee, said Trump’s election raises a number of questions, in particular outside the US.
In the US, Trump president means “the return of capitalism to the helm”, assessed Saint-Georges, “bringing with it tax cuts, reduced regulation and investment incentives, among others.”
“What’s more, Trump is an advocate of an unashamedly mercantilist form of capitalism that aims to foster wealth creation within the US. It is therefore no surprise that consumer confidence indicators and US corporate sentiment have vastly improved since 9 November last year. It’s full steam ahead for the US economy,” Carmignac’s managing director argued in its latest note.
Saint-Georges considers the upturn in the economic cycle precedes the election of Trump and date it to Q1 2016 and has sped up with what he calls the Trump effect.
According to him, it is likely this cycle will begin to flag in the second half of the year, Saint-Georges stressing that the manufacturing, materials and energy sectors have been performing very strongly for a year.
“The financial markets may therefore be tempted to start taking profits on these sectors a few months from now,” he said.
A concern to Saint-Georges remains the situation of the bond markets, “convinced that inflation is set to remain perpetually low (especially in Europe).”
“However, indicators in China, the United States, Japan and Europe are increasingly showing that inflation – which is also cyclical – is now picking up from very low levels. The bond markets are therefore extremely vulnerable – both in the United States and Europe – and will therefore constitute a limit for the revaluation of equity markets,” he exposed.
Saint-Georges said equity markets could face hard times in the event the economic cycle starts to flatten out in the US in the second half of 2017, “just as interest rates tighten due to rising inflation.”
And he warned: “This sequence of events cannot be ruled out by any means.”