Johanna Kyrklund, Group Chief Investment Officer:
Trump’s victory in the US presidential election has not changed our positive stance on global equities, with a preference for US shares. In his previous administration, Donald Trump was focused on the Dow Jones as a barometer of his success. In the background, we continue to see a soft landing for the US economy. Fiscal policy is likely to remain supportive.
The key risk is on trade: We could start to hear pronouncements from Trump quite soon. In the short term, a protective trade stance is supportive of the US dollar and poses a risk to growth outside the US. We would expect the Chinese authorities to continue with stimulative policies to offset this. Europe becomes more of a concern, however, as it could then become caught in the crosshairs of a more hostile trade environment – without the unified leadership that is required to tackle it.
We continue to advocate owning bonds for old-fashioned reasons – to generate income. The role of bonds as diversifiers continues to remain challenged by the likelihood of expansionary fiscal policies. In the big picture, however, we continue to see a low risk of a hard economic landing and view this administration as increasing the risk of inflation rising later in 2025 due to their trade and fiscal policy.
The worst outcome would have been a contested election, which we have avoided.
Economic impact: Trump’s victory to be inflationary for the US economy
George Brown, Senior US Economist:
After what had looked set to be a close contest, Donald Trump has managed to pull off a decisive victory over Kamala Harris. In doing so, he has become only the second individual to be elected to a second non-consecutive term as president. The only question that remains is whether the Republicans will also take both chambers of Congress. While they have regained control of the Senate, it remains unclear how the House of Representatives will shape up amidst tight races in California and New York. However, the party is tipped to retain their majority In the House. Betting odds on Polymarket currently assign a probability of over 90% on a so-called Red Sweep, a marked rise from the 35% they had been when voting closed in states on the East Coast.
Trump is therefore well-positioned to implement his policy agenda. He has pledged to cut taxes and regulations further while also raising tariffs and restricting immigration, the combination of which will be reflationary for the US economy. And so, later this month we intend to further raise our above-consensus 2.1% growth forecast for 2025. Our previous forecasts in August were conditioned on betting odds at the time, which had pointed to a divided government under Harris.
Inflation should also prove stickier, reinforcing our conviction that the Federal Reserve (Fed) will not deliver as much easing as it has indicated it will. Given our view that the neutral rate lies around 3.50%, Trump’s return to the White House likely means that the Fed needs to keep rates above this level. (The neutral rate is a theoretical interest rate deemed neither too restrictive nor too loose for growth and inflation to settle back onto steady and predictable paths.)
Emerging market (EM) equities: Tariffs pose a risk
Tom Wilson, Head of Emerging Market Equities:
A Trump administration is likely a net negative for emerging market (EM) equities. The potential for broad-based application of tariffs on imports to the US, with a particularly significant rise in tariffs on China, is the most notable risk for EM. Tariffs would likely lead to currency weakness for exposed countries, especially given the potential for depreciation of the renminbi. On the other hand, the application of high tariffs may prompt a more significant Chinese policy response to defend against the impact on growth.
There is also uncertainty regarding the actual outcome, particularly with regards to China: to what extent is the threat of high tariffs the start of a negotiating process? And even if high tariffs are applied, to what extent will they be phased in through time? Trade tariffs and other Trump administration policies may be inflationary for the US. The expected outcome would be dollar strength, higher inflation, less easing from the Fed and a higher US yield curve. All of this is broadly unhelpful for EM equity returns, pressuring currencies and limiting freedom of action for central banks.
Another question is regarding US foreign policy and the extent to which the US is more isolationist under a Trump presidency. This may lift risk premiums in certain markets. In Asia, we would not expect the US commitment to Taiwan to change markedly, given the extent to which Taiwan is critical to US interests in the technology supply chain. However, it is important that the US-China relationship is carefully managed to avoid exacerbating risk. It may be that a Trump administration drives a faster resolution of the conflict in Ukraine. This can have either positive or negative outcomes (Ukraine reconstruction vs concerns that any settlement won’t last). One impact is likely to be an ongoing increase in European defence spend.
In relation to the immediate market reaction, China is weak and India is strong, while Fed-sensitive markets in Asia are soft. This is in line with expectations. India is less exposed than other emerging markets to the impact of Trump policies, hence India may prove defensive in the near term. In China, the market now has a stronger policy backstop. Despite trade uncertainty, we would be wary to stray from our existing neutral view, given the potential for further policy support and supportive positioning.
Global equities: Corporate tax cuts and deregulation could offer support for US shares
Simon Webber, Head of Global Equities:
We remain constructive on US equities on a 12-month view, underpinned by modest earnings growth, although if the yield curve continues to move higher (i.e. bond yields rise) this will begin to impact valuations.
There are some risks to corporate profitability from a Trump win as tariffs could pose a headwind for profit margins in some sectors where there is still a reliance on China-imported goods. Meanwhile, an expected clampdown on immigration could drive wage growth, particularly in consumer and construction sectors. These are inflationary dynamics. Companies with pricing power (the ability to raise prices without denting demand) should fare better in this environment although demand destruction may be a feasible scenario.
More positively for US companies, Trump’s proposed corporate tax cut would clearly be a tailwind. Deregulation should be supportive for US equities as well, particularly for larger banks and areas of technology such as artificial intelligence (AI) outside of the mega cap tech companies. Indeed, structural investment themes in some cases could thrive in a new Trump era where innovation is likely to be underpinned by looser regulation to maintain US technological leadership. We think anti-trust regulation under Trump is likely to see a return to a more laissez-faire competition policy compared to a Harris Administration. An exception to this may be some of the big tech and social media platform companies, where JD Vance has been clear that he believes some firms should be broken up and other big tech platforms have a clear liberal bias that needs to be addressed.
Trump’s rhetoric on tariffs is serious, but also a negotiating tactic. We will have to carefully evaluate the actual implementation of tariffs. If sizeable blanket tariffs are applied to all imports or to all China imports, then inflation will almost certainly rise and consumer spending will be impacted. Energy and climate policy was one of the starkest divides between the two candidates. There is no doubt that under Trump the US will be taken out of most global efforts to tackle climate change. Business investment in the US value chain around key climate technologies is likely to be set back, with the focus turning to the rest of the world where the energy transition will continue to gain pace.
In 2016, the market was caught by surprise as no one really expected Trump to win. This time around, investors have been pricing in Trump policy implications for months. Furthermore, the initial moves in 2016 were not always sustained. Perhaps the best example of this is the clean energy sector, which performed much better under Trump in the period of 2016-2020 than it did under Biden in 2020-2024, despite the Inflation Reduction Act being passed.
The point here is that politics and governments are not the only factors moving markets; it is the combination of valuations, cycles and competition that generally dominates in the medium term.
Energy transition: Green incentives at risk but cost case for renewables remains intact
Alex Monk, Portfolio Manager, Global Resource Equities:
Trump’s administration policies are likely to be more inflationary. Capital costs are an important driver of both sustainable energy project development and consumer demand for clean energy goods. Therefore, the potential for reduced investment, ongoing project delays, and slower than hoped consumer adoption of key technologies like electric vehicles, rooftop solar, and heat pumps is undoubtedly somewhat at risk. While the outcome of a Republican sweep does create near-term uncertainty from a policy perspective, we think the risk of a wholesale repeal of key initiatives, such as the Inflation Reduction Act, is low.
What’s more, policy is not the only driver of the energy transition, and the US is not the only market for companies across the space. We have always stressed that the long-term drivers of the global energy transition are three-fold:
- improving costs and technologies
- growing consumer and corporate demand for sustainable energy goods and services
- long-term policy support. In this context, while the shifting US policy landscape is undoubtedly unhelpful, it should not distract from the strength of other forces encouraging investment in the space.
Finally, in our view, valuations across the energy transition equity sector are already more than pricing in any disruption and change.
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