US president-elect Donald Trump’s victory will lead to an era of fiscal spending that could lift growth in the US and spur European governments to follow suit, said John Woods, Asia-Pacific chief investment officer at Credit Suisse.
Trump, the Republican nominee who last week unexpectedly defeated his Democratic rival, Hillary Rodham Clinton, has promised to boost growth at home through a combination of heavy infrastructure investment and deep corporate tax cuts.
Although it is too early to say what measures the new administration will prioritize or how they will fund them, Trump’s control of both houses gives him great flexibility.
“The initial indications we have had from the incoming government, coupled with comments made during the campaign trail, have focused investor perceptions on the inflationary consequences of the expected policies,” said Woods, speaking at the Reuters Global Investment Outlook Summit in Hong Kong.
“By that, I mean there seems to be a much higher degree of fiscal activism being discussed than previous administrations,” he said. “It’s not beyond the realm of possibility that we start to see also fiscal activism in the EU.”
Woods, who expects a rising trend for US interest rates, recommends investing mostly in equities, with a preference for segments such as infrastructure and defense, healthcare, financials and resources exploration companies.
This is in anticipation of lighter regulation for the financial sector, a partial repeal of the Affordable Care Act championed by US President Barack Obama and more spending in the construction sector.
Woods said he thought a full-blown trade war between the US and China, its largest trading partner, was unlikely, despite the campaign rhetoric from Trump, who accused Beijing of artificially assisting its exporters and talked of introducing steep tariffs on Chinese goods.
“My own sense is that precipitating, or increasing trade friction, for example, between the United States and China is frankly self defeating,” he said.
Trump would also have a hard job in making the case that China is a currency manipulator, given its economy has been slowing in the past two years, triggering massive capital outflows, Woods said.
China’s fast-rising debt and slowing economic growth topped the list of investors’ worries a year ago, but Woods said that was less of a concern now.
“Why there’s been a sea change in opinion in my view now is because we are seeing some indications of moderation in that deceleration, and indeed there are some people that even see some stability,” Woods said.
Woods said he expected Beijing to focus on stabilizing growth until the next five-year plenum of the Chinese Communist Party in October next year. After that, Chinese President Xi Jinping (習近平), could take some tough measures to rein in debt.
“The government is entirely motivated to support growth and to cushion any downturn because I don’t think there’s a political will at the moment to countenance a sharper decline in growth,” he said.
“They are going to have to nationalize a large part of their debt, and they have the means to do it,” he said.
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