Investors are expecting US President Donald Trump’s economic reforms to impact markets faster than they are likely to do so, according to Newton Investment Management.
Removing “poorly designed regulation” currently impacting US markets has the potential to drive productivity, employment and incomes upward, Newton Investment Management global strategist Peter Hensman said.
However, Mr Hensman cautioned that implementing the proposed reforms is unlikely to meet “heightened market expectations of a rapid transformation of the economy” similar to that seen under former president Ronald Reagan.
“Although history takes a favourable view of the Reagan administration, redirecting the economy was not easy,” he said.
“Furthermore, the backdrop was very different in terms of demographics, the level of indebtedness in the economy, and the state of financial markets.”
One example of this is that the inflationary monetary policies of the 1970s that faced Mr Reagan resulted in heightened consumer pricing, whereas Mr Trump faces deliberately inflated asset prices, Mr Hensman said.
“Changing course when you are heading in the wrong direction can be the correct choice. That doesn’t mean that doing so is easy, or that the payback fits neatly into the requirements of the electoral, let alone financial, cycle,” he said.
“History may look back kindly on the legacy of President Trump; however, even if this does prove to be the case, the journey is likely to be longer than many investors appear currently to believe.”