One of the biggest surprises after the US election is the market’s positive reading of Trump’s victory according to Potter, co-head of multi-manager at the firm.
“Post-Trump, markets have suddenly adopted the future president’s new ideology that may galvanise better economic growth numbers. If that is the case, the world we have known for the last five years might be turned on its head. If you look at the makeup of global indices, the relative exposure to oil and commodities is meaningful. And if those areas, through rates or rising oil prices, have a less challenging profits outlook, then that materially affects the outlook for the earnings in these indices in a positive way.”
However, as Trump is not even in office yet, reading too far into his words before they become actions is unwise in Potter’s mind. Still, the threat of Trump’s tariffs is enough to convince him to adopt a more cautious approach toward emerging markets, though he remains overweight in Japan and Asia Pacific.
“I would like to think we are not wrong on Asia,” he remarked. “But I know we have to watch the issues with Trump and his tariffs as that could destabilise the Asian world. EM do look relatively cheap, and they are more resilient than ever before. We are keen on that area, but I would want to gauge what Trump says on trade after he has been handed the reigns before adding more.”
One trend in the immediate aftermath of Trump and the rising inflationary environment that has been talked about frequently is the switch from growth to value. Potter advises that investors should not forego growth entirely but should aim to have a blend of both stocks in their portfolios.
“At the margin, people should be thinking of adding value if they believe we are entering a world where economic growth prospects are likely to rise, not fall. With Trump being elected there is a good chance that will happen but it’s not certain. Recently, we have seen a large bounce in value and cyclical stocks with some justification, but value has quite a lot further to go.”
Bonds are also a worry in this environment, which is why Potter has armed himself with plenty of floating rate notes.
Meanwhile, he remains underweight in the UK and Europe but for different reasons.
