A look at potential winners and losers
As a stockpicker with a long-term investment horizon I tend not to dwell too long on national politics – preferring to analyse companies and their prospects – but the US election (and the market’s jubilant reaction) has certainly provided food for thought.
As we enter into the first weeks of the new Trump administration, identifying the long-term winners and losers requires looking past much of the market’s current noise.
- International investors. With a seamless execution on Trump’s pro-business promises priced in to US markets, the odds of disappointment here have risen. There is now little room for upsets as US equity valuations get increasingly stretched. By extension, the relative risk/reward in many other markets looks set to improve – a clear fillip for UK investors.
- Healthcare stocks have been subject to particular selling pressure, both due to the style rotation of the market and concerns around a clampdown on drug pricing. This could be a headwind for international healthcare businesses in the short term, but longer term we believe the investment theses underpinning the global stocks held in this sector are intact and supported by secular demand growth, for example in areas such as insulin and blood plasma.
- Technology. An area where I have found compelling long-term investment ideas – could be negatively impacted under the new administration. The most recent development on this front is the appointment of a Federal Communications Commission (FCC) chair hostile to the principle of internet neutrality.
A roll-back of this rule would clearly benefit some companies and disadvantage others, but we do not expect it to alter the broader global trends the portfolio is aligned with.
- Cyclical stocks. In the US and in global markets, cyclical stocks have been the main beneficiaries in the post-election euphoria. The cyclical rally may continue well into 2017, but it is our belief that economic and earnings growth remains challenging around the world. Even in the US – where expectations have been raised – there is scope for disappointment if fiscal stimulus falls short or implementation is delayed.
- Banks have been buoyed by potential interest rate rises, and talk of a possible repeal of post-financial crisis regulation, but we suspect the market is getting a bit ahead of itself. Even under a more laissez-faire Trump regime, sustainable profit margin expansion will be challenging, and this is a key reason why my enthusiasm here remains lukewarm.
- Export-focused US businesses. Protectionism could put many export-focused US businesses at a distinct disadvantage. Trump’s promise to bring back manufacturing jobs, and his strong-arm approach to achieving this, is likely to have been met with mixed reactions in C-suites across the country.
The impact on business profitability is hard to gauge, given some tax cuts have been mooted, but limitations on free trade will clearly be a straightjacket for many industries. In the meantime, continued post-election dollar strength also remains a significant headwind.
A stream of executive orders during Trump’s first days in office has given a flavour of things to come – and all this could change very quickly. That’s why I intend to focus on companies, their balance sheets, valuations and prospects – after all, this is where a skilled investment manager can add value.
Past performance is not a guide to future performance.
By Tom Walker, Portfolio Manager, Martin Currie Global Portfolio Trust
To hear more from Tom Walker, book your place to the Scotsman Conferences event on the 28th of March “Investment in a Post Brexit World.”
Information correct at time of publication. This information is issued and approved by Martin Currie Investment Management Limited. The opinions contained in this article are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.