Investment fund managers, Fidelity International, hosted an investment lunch on Wednesday 7 February to take a look at the current climate in the United States of America and the challenges and opportunities presented by the recent election of President Donald Trump.
At L’Etoile Restaurant of Sofitel Le Grand Ducal, Kasia Kiladis, investment director for US equities, and Angel Agudo, portfolio manager for FF America and FIF America Special Situations gave their views on what might change in the months and years to come in light of President Trump’s fiscal policies.
The upshot of the commentary was that regardless of the much-reported political turmoil surrounding the recent elections, and the perceived unpredictability of President Trump, including his views on trade and immigration, America still presents a very strong investment opportunity, especially in light of the poor growth that dominates other parts of the world.
Ms Kiladis noted that, irrespective of the initial market reaction, the US economy remains in good shape and should continue to improve at a moderate pace, thanks to its falling reliance on imported energy and positive demographic trends with a growing working-age population. America’s investment in research and development continues to dwarf that of other countries, while the ease of doing business there is exceeded only by the United Kingdom.
Moreover, she said, manufacturing and consumer sentiment in the US are on the up, according to statistics from January 2017 and December 2016 respectively.
“These are historic highs in consumer and business sentiment,” said Ms Kiladis, “and GDP in the US is strongly based on consumer perception.”
Aside from the current indicators, and notwithstanding the large number of protests against the new President, Ms Kiladis felt there are strong positives to be found in his plans for the economy, especially the plans for expanded fiscal spending on infrastructure and defence and the drive, already started, to reduce taxation and regulation.
Furthermore, Trump’s much-vaunted plans to reduce the corporate tax rate will have a significant impact on locally based industry’s bottom lines. The current 35% rate, one of the world’s highest, can raise to 39% when other taxes are added in, and unlike transnationals, local industry is not in a position to negotiate a path around this.
Accordingly, she said, the infrastructure and defence sectors are looking very strong, as are energy and finance, which can expect to benefit from plans for deregulation, and healthcare and telecoms which would benefit from the proposed reduction in the corporate tax rate.
Ms Kiladis highlighted that the general defence expenditure had in fact been downwards over recent years, notwithstanding spikes at times of conflict or uncertainty, so it is felt that President Trump’s plans should reverse that trend.
“President Trump’s policies are very focussed on promoting growth, which is pushing a sense of optimism in a huge consumer class, as well as among SMEs and some large names that will benefit along the way,” said Ms Kiladis.
Other sectors will be impacted by Trump’s protectionist nature, however. There are fears of a sort of ‘brain-plug’ as closed borders prevent talent from arriving. Even highly skilled workers on H1 Visas have been affected, which could have consequences in, for example, the tech industry.
The inflationary fears that President Trump’s prescriptions have provoked came up, though Ms Kiladis noted that the Federal Reserve Bank has still not raised rates.
President Trump’s trade and immigration policies are cementing in ways that were not anticipated after it transpired that his campaign talk would not fade to rhetoric. “The wall for Mexico was greeted with incredulity when he first said it. But now we know everything is possible,” said Ms Kiladis.
However, the reaction among some members of the audience was on the positive side. “Change is good and a positive sign of democracy at work,” said one guest. And President Donald Trump is definitely a change.
Image: Angel Agudo
