08 Jan Mysterious islands
Blue Bridge performance explained
From the get-go, I was unable to predict Brexit and never believed Trump would triumph…
And to this adds three more facts:
- Just as the polling firms, I have no idea in what world I’m evolving. Despite or due to the omnipresence of information, I can no longer see my environment clearly or realistically.
- The massive populist blows have had only negative effects on world stock markets in the short term—the last one to date being during the American elections even broke a few records…
- The ability to adapt becomes pivotal, as much for the individual as for wealth management…
In this context, strategic asset allocation takes on its true meaning and the use of the ETF makes sense. It’s not about advocating for passive management, but rather effectively using these index trackers in the short term to leverage the impact of market fluctuations at low costs. This is where our team’s strength lies, lead by Frederick Castonguay, CFA, Chief Investment Officer.
Blue Bridge looks beyond
Donald Trump’s victory in the American presidential elections may well produce a mini economic boom. If we stick to the electoral promises made, corporate taxation rates could go from 35% to 15%, creating a potential impact on stock returns. Moreover, his “tax revolution” project could increase GDP by about 1.5%, which in turn could lead to an annual American economic growth worth anywhere between 3% and 3.5% next year as well as a rise in the US dollar. Finally, Trump’s infrastructure spending programme set at five billion dollars could have a positive impact on the economy.
With this anticipated growth, the Federal Reserve will be forced to accelerate interest rate hikes in order to adequately align both monetary and tax policies. The last time we observed this combination of a rigorous monetary policy plus an advantageous tax policy was in the 1980s, under Ronald Regan’s presidency, which alleviated the tax burden while Paul Volker increased interest rates in order to curb inflation. We know the outcome: inflation was overcome at the expense of a heavy recession that had an economic impact worldwide. In 2017, we can therefore expect a potential mini economic boom in the United States, something absolutely inconceivable two years ago. Watch out for the backlash, though. This upturn may be short-lived if the fear of seeing the USA become more and more protectionist is realised. In that case, we need to make sure our analyses include an increased risk of inflation, a slowdown in economic growth and a decline in corporate earnings.
Regarding emerging markets (EM), we remain sceptic. Certainly in China, the environment has improved since 2015, but there is still a major concern about the global debt rate. In addition, Trump’s protectionist discourse may well prove to be damaging to these markets that will remain highly volatile. Investors must take these potential “retreating islands” as mysterious islands, sources of lurking dangers.
On this note, I’m wishing a Happy New Year to you, our readers, and your loved ones.