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'Investors looking at the next 6-12 months can be certain that the Fed will maintain its easing cycle, and we expect the overall environment to be conducive for fixed income investments for portfolio diversification.'
US election results
It has been a thumping victory for Donald Trump as he regains control of the White House after a four-year hiatus to become the 47th US president.
The markets, too, have given a thumbs-up to the development with most global markets rallying.
So, how do global brokerages interpret the development and what are the likely implications for the global financial markets? Will the bears run for cover as bulls take control of the stock markets?
What does Trump 2.0 have in store for the debt segment? Will gold and silver prices continue to sparkle? Is Trump 2.0 tenure likely to be inflationary and stop the US Fed in its tracks?
Here's a quick view on what leading brokerages think.
Julius Baer
A Trump sweep is positive for equities and reinforces our long-standing preference of US equities over Europe.
Cyclical sectors like industrials and mid-caps, as well as banks, oil & gas, and defence, stand to gain from the better growth outlook and Trump's policy direction.
While we see potential upside risks for gold from Trump's presidency, investors seem to be taking profits.
The bigger picture of the gold market remains very much unchanged, with a resumption of central-bank buying, in particular from China, being much more important than the US presidential elections.
Morgan Stanley
For Asia, tariffs will be in focus and might come as early as the first half of 2025 (H1-CY25).
If implemented, they may bring downside risks to China and Asia's outlook.
Questions remain around whether there would just be 50 per cent or 60 per cent tariffs on China alone, or if more economies other than China would be exposed to tariff hikes, or if there would also be a universal 10 per cent tariff on all imports.
Corporate confidence and financial conditions are key to watch. Apart from China, economies such as Korea, Taiwan, Malaysia, and Thailand would be more exposed considering the high trade orientation of their economies. India, Japan, and the Philippines are still the least exposed.
Nomura
The negative growth spillover from weaker US growth should be limited as India is largely a domestic demand-driven economy.
On the contrary, lower commodity prices owing to the hit to China's growth and lower oil prices, due to a greater push towards fossil fuels, could be a macro tailwind for India.
India is well-prepared to handle any volatility stemming from US policies, amid its large FX reserves buffer, stable growth-moderate inflation mix, high real rates, fiscal discipline and a continued focus on reforms.
Franklin Templeton Institute
Historically, a Republican clean sweep has been the most bullish scenario for S&P 500 average returns, generating an average of 16 per cent returns during the administration.
For equities, the biggest winners will be sectors and industries welcoming a more business-friendly regulatory environment, including fossil fuel energy companies, financial services and smaller capitalisation companies.
Fears of caps on prescription drug prices will recede, boosting the fortunes of the pharma sector.
Investors looking at the next 6-12 months can be certain that the Fed will maintain its easing cycle, and we expect the overall environment to be conducive for fixed income investments for portfolio diversification.
Rabobank International
The focus now shifts to what China's policy response to a Trump win will be.
We have heard market whispers that tariffs will lead to a large CNY depreciation.
If that happens, Trump will logically shout for even higher tariffs, and a downward spiral begins that drags in the entire global economy.
Rumour swirls of Trump still wanting an ex-officio rate-setting advisory role, that Powell won't be reappointed, and that Trump might even name his successor in advance, muddying the monetary waters.
Assuming this is all true, one is going to have to start factoring politics, and potentially even geopolitics, into central banking.
Nuvama
Markets were quite buoyant in the first year of Trump's tenure (in 2017), but it was backed by upbeat global growth, earnings and reasonable valuations.
Tax cuts in 2018 reversed the rally with mid-caps correcting 20–30 per cent.
Information technology (IT) was the best performing sector in 2018, benefiting from increased spending by US corporates and rupee depreciation.
Today, valuations are quite elevated, and the earnings momentum is weakening.
A rise in bond yields or weakness in global trade shall only increase volatility in markets.
We maintain a defensive bias with private banks being the only key cyclical overweight in our model portfolio.
Kotak Alternate Managers
The market has already factored in a stronger dollar and higher US yields as Trump's policies seem to be inflationary.
Hence, in the near term, the INR may depreciate, and Indian yields may see some spike.
However, in the long run, we believe higher inflation and a burgeoning US fiscal deficit may eventually hurt the dollar.
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Feature Presentation: Rajesh Alva/Rediff.com
