Markets too optimistic on Trump policies

Markets too optimistic on Trump policies

The backdrop for equity markets is likely to support a continuation of the recent rally into 2017, but Man FRM cautions markets are more confident about Donald Trump’s presidency than they should be.


The Man FRM investment team said the impact Mr Trump’s proposed policies will have on the economy are “too multifaceted to be understood in advance” and that market participants need to be more cautious.

“The confidence with which markets have embraced the fiscal inflationary narrative leaves plenty of room for concern,” the company said.

“This rally can push valuations, with the ‘P’ of price outpacing the realised ‘E’ of earnings in the traditional P/E method of market valuation, but we believe this relationship will revert to lower than current levels with a force that continues to grow as the current rally stretches on.

The company said the outlook for inflation was also “uneasy”.

“If we are to see inflation, then we believe Commodity prices are a likelier source than the more benign fiscal expansion, and it is as hard to see this as a victory for central bank policy as it is to see any real economic benefits that might flow from it,” Man FRM said.

The company warned that markets were currently at greater risk of a “major shock”, adding that “from a political angle the world feels more insecure than it has for a long time”.

“If the more pessimistic commentators are right, then Trump and Brexit are the first indicators of a downswing of global economic integration.”

Read more:

Asia-Pacific credit ratings face downward pressure: Moody’s

Voluntary contributions up ahead of super reforms

Small companies offer concentration risk protection

Hub24 completes fintech acquisition

Saxo expand collateral choices for margin trades

Related Articles

 

Markets too optimistic on Trump policies
investordaily image
ID logo
promoted stories

Appointments

David Cullen

AMP appoints new group general counsel

Reporter

Matt Brown

Australian Unity hires former ANZ Wealth exec

Reporter

Deanne Stewart

First State Super announces new CEO

Reporter

Analysis

investordaily image

Corporate governance and advocacy in China

Therese Niklasson

Dug Higgins

The shifting LIC landscape

Dug Higgins

investordaily image

The perils of chasing niche infrastructure

Frithjof van Zyp