Despite the sensational headlines and the President`s new format of communicating with citizens, it is important to remember that executive orders are not set in stone and can be overturned or watered down by various judicial bodies along with congress and the senate. Trump’s tweetomania cannot trump democratic decision processes; the US Constitution provides for an adequate safety net.
One should also note that many topical issues which may have become problematic, such as recognition of the “One China policy”, have been backed away from.
As previously mentioned, we expect returns from US equities this year to be ok but not spectacular, as it will take time for the various fiscal promises to be delivered on and work through the economy. Volatility is likely to be elevated, but opportunistic investors should be able to use this to their advantage. Despite short term bumps in the road, investors should always remember that it is corporate profit growth that drives markets and for this year they are looking pretty good.
This much misattributed quote actually derives from Kautilya – the “Indian Machiavelli” – and was written in the 4th century BC. Looking at the new trade deals struck between Europe and China and China and Mexico, it would seem as if others have been reading their ancient literature as well.
Whilst we still believe that many of the more extreme comments regarding tariffs are just a posturing by the new US government in order to secure better deals, it does leave the door open for others to take advantage of the uncertainty.
The next major risk event on the horizon is political again – the French elections in April. At this point in time, it seems like Marie Le Pen will get through the first round but will be eliminated in the second round by the independent centralist candidate, Emmanuel Macron, who would go on to become the President of France. The vote may be tighter than many think and will cause market jitters closer to the event.
Whilst the chance of Le Pen winning seems remote, the odds are around 30 percent. If BREXIT has taught us anything, it should be that 30 percent is closer to 50 percent than to zero percent!
In the event of an unforeseen Le Pen victory, investors should consider being long in French equities (mega cap exporters) and short the new French franc and euro (which are almost sure to depreciate).
Of course the usual worries about the break-up of the Eurozone will once again emerge but, as we have always maintained, this is easier said than done.
Given the past predictions of the imminent Eurozone collapse following BREXIT and the Italian referendum, it would be wise to keep one`s mind open. Five hundred million consumers will not just vanish off the face of this earth, and countries will still strive for economic growth and will want to trade with one another. If the very worst does happen, it is likely to proceed in a very slow motion.
Let me paint an unusual analogy for you. Imagine today’s French economy as a tiger in a pussycat disguise. With a highly educated workforce and some of the best business managers in the world, it wouldn`t take that much to transform it into the tiger behind that costume.
A Macron victory, which we believe would imply an energetic, pro-business, centrist government, could be just the right formula for France to finally realise its potential.
What once turned Ireland into a successful “Celtic tiger” could very well make France into an accomplished “Gallic tiger”.
Your Wealth at a Glance.