The key issue for insurers following Donald Trump’s shock US presidential election win will be the impact on rates, says Columbia Threadneedle’s portfolio manager Dave Chappell.
Chappell said: “We expect the initial response in dollar bond markets would be a risk off, i.e. a move lower in Treasury yields accompanied by a widening of credit spreads. How long this move lasts is uncertain, and would be dependent on the reaction in stock markets.
The next stage would be the concern around protectionism, and the damage that could cause to already weak global trade, said Chappell.
He explained: “Protectionism will increase inflation concerns, leading to wider break-evens and likely steeper curves. However, long end yields will experience the tug of war between weaker growth concerns, (in the short to medium term), against fiscal slippage and inflation.”
In Chappell’s view: “One has to consider quite how much stimulus Trump could deliver when the starting point of outstanding debt is so high and congress so hostile, but loosening of fiscal policy is becoming increasingly popular across the developed world as monetary policy loses its efficacy.”
Mark Burgess, CIO EMEA and global head of equities at Columbia Threadneedle Investments, said for the US domestic economy, the obvious winners are infrastructure, with a focus on roads, bridges, airports and sectors that would benefit from M&A and industry consolidation, which Trump is particularly enthusiastic about.
Burgess said: “Financials will benefit from loosening of the Dodd-Frank regulations, while the defence sector is likely to thrive. Other sectors likely to do well include consumer discretionary, consumer staples, telecoms, energy and mining.”
In a note which Standard Life Investments shared with its clients, the Edinburgh-headquartered investment management company stressed the importance of not overreacting and waiting for clear announcements of priorities.
Standard Life Investments said: “The president-elect and House Republicans have placed large tax cuts and corporate tax reform at the heart of their fiscal agenda. Mr Trump has also advocated a large increase in infrastructure spending.
“With Republicans also controlling the Senate, this implies a likely loosening of fiscal policy from late 2017 and into 2018, though fiscal conservatives in Congress may seek some offsetting cuts to other areas of discretionary spending. There is a strong prospect that the regulatory noose will loosen across finance, energy, telecoms and healthcare sectors.”