Edward Bonham Carter: Don’t underestimate Trump in 2020

Fiscal stimulus is a concern in the year ahead as a massive debt pile builds up

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Jupiter vice chairman Edward Bonham Carter has warned investors not to underestimate Donald Trump in the 2020 US presidential election, in his annual outlook for the year ahead.

“As in any card game, luck plays its part and Trump is proving luckier than most,” Bonham Carter (pictured) said, highlighting his “formidable” skills as a political campaigner.

“Clinton won his famous victory against George W. Bush with his promise to turn around an ailing economy. While the Democratic rival to Trump will no doubt be able to point to a slowdown in the US economy in 2020, market expectations of a full-blown recession next year may prove overblown.”

The US economy is forecast to grow 2.1% in 2020, down from 2.4% in 2019, according to International Monetary Fund forecasts.

The $19trn default risk in global debt

Looking to the global picture, Bonham Carter said it was concerning central banks had little firepower to address a sharp downturn. At the same time, fiscal stimulus is gaining momentum with even the IMF encouraging more government spending for countries where activity has weakened and the room to ease monetary policy is limited.

“Spending your way out of trouble is nothing new, but it comes at a time when the average debt pile of the world’s major economies is more than 70% of their GDP, the highest level in more than 150 years, if you exclude a spike around the second world war,” he said.

“Servicing this debt isn’t a problem when interest rates are low but can quickly become a headache if rates do start to rise and growth starts to dissipate.”

An economic slowdown half as severe as the financial crisis could put $19trn of corporate debt at risk of default, he said. “The sustainability of such levels of debt at a time when the global economy is slowing remains a key question for 2020 and beyond.”

Geopolitics fails to derail global economies

Despite these concerns, Bonham Carter says most Western economies have held up well in the face of “an increasingly fractious and uncertain world”, pointing to Brexit in the UK as an example.

He said: “Detractors might argue the country has yet to leave the European Union, so it is too early to say what the true impact will be. It is a valid point, but I think it unlikely we will see the Domesday scenario many forecast in the immediate aftermath of the UK referendum.”

Globally, reflation is a bigger concern than inflation, while in the US unemployment is at a near 50-year low, he said. Although there are also pockets of concern: global manufacturing has been declining for several months and exports fell at their second-fastest rate since October 2012 with Germany bearing the brunt.

In China, GDP growth has sunk to a near 30-year low “raising questions as to whether it has the power to help reboot global growth as it did after the global financial crisis of 2007-08”.

Bonham Carter concluded: “In a US election year, it is inevitable the polarising figure of Donald Trump will dominate the news cycle and remain a disruptive influence on world markets.

“Politics has always had the power to distract and shift the focus away from the fundamentals, and the ongoing rivalry between the US and China will continue to influence markets for years to come. In such a climate, anchoring investment decisions in sound analysis and research cannot be underestimated.”

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