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Equity markets could thrive on anti-establishment - analyst

Feb 27 2017 19:21
Lameez Omarjee

Johannesburg – Growing political uncertainty in the developed world, along with a trend towards anti-establishment views of government may be positive for equity markets, said an analyst.

To illustrate this point, Tony Cadle, fund manager at Ashburton Investments showed how Trump’s presidency in the US has been well-received by markets, for now.

Cadle explained that the investment landscape for 2017 appears more positive for growth assets, prompted by a shift from the US towards fiscal policy stimulus.

“The initial view of a Trump Presidency in the US appears positive for equity markets with his pro-business stance towards taxes, infrastructure spend and lack of concern towards climate change,” said Cadle.

Trump’s intentions to reduce corporate taxes from 35% to 15%, would boost corporate profits. This will further boost business confidence and create opportunities for more capital expenditure spend which will translate into job creation and employment, he explained.

In addition to this, Trump’s planned $1trn infrastructure programme should generate economic growth and create jobs. “Despite the hurdles to be negotiated, the implementation of the infrastructure programme would be positive for economic growth and be supportive of corporate earnings,” added Cadle.

The fossil fuel industry is also expected to benefit from Trump’s presidency. Trump intends to review legislation regarding the coal sector and the oil industry plan to end the country’s participation in international climate agreements.

Further, the public backlash against policies such as quantitative easing and other austerity measures will eventually influence investment behaviour. “An era of nationalism, interventionist government policies potentially leading to higher inflation and interest rates appears to be unfolding,” said Cadle. 

So far, investment decisions are influenced by a stronger dollar, which stems from Trump’s pro-business tax initiatives and fiscal stimulus programme, he explained. “However, should his initiatives not lead to accelerated economic growth the US dollar could be vulnerable to a period of weakness,” he said.

Chief economist at Stanlib, Kevin Lings explained that there has been a “sharp jump” in US business confidence in December 2016 and January 2017.

“Importantly, there is a strong and positive correlation between US confidence and economic growth,” said Lings. “A sustained rise in business confidence should lead to a noticeable improvement in GDP growth.”

He explained that the boost in confidence is linked to Trump’s proposed tax cuts, less business regulation, greater trade protection and increased spend on economic infrastructure. 

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us  |  trump  |  economy  |  investment  |  business

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