Navigating economic change ahead as uncertainty gradually eases
Raj Singh
Portfolio Manager, Multi-Asset
For public distribution in Hong Kong and Malaysia. In other Asia countries/regions, for Institutional, Professional, Qualified and/or Wholesale Investor Use Only in Permitted Jurisdictions as defined by local laws and regulations.
Donald Trump is set to become the 47th President of the United States. One of his intentions of bringing manufacturing capacity back to the U.S., Trump outlined a policy agenda focusing on trade tariffs. The economic impact both on the domestic U.S. economy, as well as global trade partners such as China and Europe. A rise in tariff levels will likely accelerate the speed of deglobalization but could also lead to higher inflation in the U.S., Upside inflation and inflation expectations risks may prompt the Federal Reserve to slow its rate-cutting pace. Already, markets are pricing in fewer rate-cuts in 2025 than prior to Trump’s victory.
Although policy uncertainty may persist into 2025, it is expected to gradually subside as Trump’s administration clarifies its policy agenda. The other source of comfort comes from the data; results from the third quarter earnings season have supported the ongoing U.S. corporate sector resilience, and forward estimates point to additional earnings growth next year. While inflation will be a crucial variable to monitor, with a soft-landing narrative still in play. Solid earnings growth, combined with the lifting of pre-election uncertainty and a likely deregulatory stance by the incoming administration, suggests a strong outlook for US equities despite potentially heightened and sustained market volatility.
On the other hand, amid concerns that China may fall short of its growth target this year, policymakers have introduced a significant package of monetary easing measures and a strong commitment for further fiscal stimulus.
The long-term effectiveness of the announced measures will largely depend on the specifics of the fiscal policy that is ultimately implemented. U.S. trade tariffs policy may exacerbate China’s growth challenges at a time when its economy is already struggling due to downturn in the property downturn. Local authorities will likely deliver even more aggressive stimulus measures to offset downside risks. A well-targeted fiscal stimulus, aimed at rejuvenating the property sector and reviving animal spirits, could significantly improve China’s economic prospects.
In equities, U.S. market remains attractive and is anticipated to continue outperforming other markets. Previous laggards like U.S. small cap should gain further momentum. In Asia, markets like India and Taiwan would be able to weather any volatility well. In China, there could be volatility given the range of scenarios on the Trump administration’s trade policies. However, we are monitoring policy development in China closely as there is potential for more forceful policy announcements due to looming US tariff risks.
In the fixed income market, some of the moves have been quite aggressive after US elections, especially in the U.S. curve. Contrary to consensus, adding U.S. duration at these levels can be seen as a good tactical opportunity. This will help to lock in higher yields and hedge any growth slowdown or escalation of geopolitical risks. In credit, the preference is to carry shorter duration U.S. credit, given limited term premium for longer end credit. In Asia credit, domestically oriented stories, such as India and Indonesia are preferred. As well as higher quality investment grade names.
Within commodities, gold is a preferred allocation, given strong demand from emerging market central banks and Asia consumers, as well as providing hedge on some of the market uncertainty around U.S. policy as it shifts administrations.
This content was published on Hong Kong Economic Journal on 3 December 2024. (Chinese only)
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