(London): Trumponomics is expected to bolster the case for stronger growth and rising inflation, sustaining rallies and higher yields in some financial markets, according to Aviva Investors’ first-quarter House View.
Donald Trump’s victory at the polls on 9 November has had a significant impact on global markets, provoking a sharp rally in developed market equities and sending yields higher across all major bond markets. The moves came after signs last year that reflation would triumph over deflation, which were largely under-appreciated by investors at the time.
Aviva Investors believes the global growth outlook is supportive of higher inflation. It expects the global economy to expand in 2017 and 2018 at its fastest pace since 2011, particularly if other countries join the US in the adoption of more expansive fiscal policy.
Ian Pizer, Head of Investment Strategy, Aviva Investors, said:
"Significant tax reform is a potential game-changer in the US and would support developed market equities in 2017, with increased infrastructure spending boosting industrials and materials.
"The upward trend in global yields will continue, helping US and European financials, although central bank policies in the euro area and Japan could lead to an increasingly differentiated outlook versus the US. Central bank purchases should sustain corporate bond markets, where spreads remain attractive relative to valuations in other asset classes.
"In emerging markets, the story of 2016 is somewhat reversed. Corporate earnings should continue to recover along with fundamentals, but the threat of increased global protectionism would hit emerging market equities harder than other areas of the stock market. A spike in protectionism would also challenge improving fundamentals in emerging market debt."
The full House View can be downloaded here and includes a wider outlook and analysis of individual asset classes.
- Developed markets equities: Tech companies could benefit from the ability to repatriate cash at a much reduced tax rate.
- Emerging markets equities: Chinese policy should remain supportive, but US dollar strength could pose headwinds.
- Global rates: Uncertainty and volatility are the watchwords with a differentiated policy outlook globally.
- Credit: Even though fundamentals have deteriorated, defaults are likely to remain low.
- Emerging market debt: local currency preferred to hard currency and corporate debt.
- Real estate: Challenges ahead for UK real estate; higher returns expected in Europe over short-term, with supply in the US picking up.
Notes to editors
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