Now that initial “Trump risk” is over, markets are focusing on the benefits of Donald Trump’s economic programme – which Carmignac Gestion said could include a decline in fixed income.
In a note this morning, the Paris fund management firm said there were three ramifications of the Trump victory.
These are: a strong dollar; a “lasting decline in fixed income markets”; and another “hornet’s nest” for emerging markets.
“The Donald Trump risk did materialise on 8 November. However, investors’ subsequent optimism reflects a change of focus among investors to the certain benefits of his economic programme,” said Carmignac in an investment note.
And with a nod towards the European ‘anti-establishment’ movement, Didier Saint-Georges, a member of Carmignac’s investment committee, wrote that Trump’s proposed economic package will have “global ramifications” and will stir the “growing temptation in Europe to break free of the financial orthodoxy imposed by Brussels”.
Carmignac said a “new westerly wind is picking up in the fixed income, equity and foreign exchange markets” as markets look for a new way forward and central bank intervention reaches the limits of its impact on the real economy and financial asset prices.
If passed, Trump fiscal policies will strengthen the dollar because capital flows into the US could speed up as a result of low tax and increased fiscal spending, Saint-Georges wrote.
“Furthermore, the Trump factor could lead to lasting decline in fixed income markets. However, rapidly rising interest rates are among the main risks, requiring flexible bond management, but they could still be more tolerable for equity markets.”
However, a strong dollar, higher interest rates and protectionist threats is negative for emerging market economies.
©2016 funds europe
