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Donald Trump’s key appointments have reinforced expectations for policies that could support economic growth and be positive for equities and other risk assets.

Six weeks on from one of the biggest shocks in US political history and there is still plenty of uncertainty surrounding Donald Trump’s policies. But how have the markets reacted and which assets have benefitted from the surprise result so far?

Although we expected a different result for the US presidential election, so far client portfolios have not suffered. Indeed, performance has been broadly neutral since, with portfolios benefitting from a diversified mix of assets.

US equities have risen since the election and could continue to benefit from Mr Trump’s policies. For example, the healthcare sector, previously under pressure from fears that Hillary Clinton – if elected – would seek lower drug prices and extend affordable healthcare, could continue to enjoy a rebound in the months ahead.

We identified that this sector was trading at a 15% discount to the market, which is the lowest valuation in more than 20 years. To take advantage of this opportunity, we have increased our exposure to the sector.

Mr Trump promised to protect US jobs through protectionist policies, but where does this leave the outlook for global trade and economic growth?

Meanwhile, our positive view on bank debt has benefited from hopes for a relaxation of financial regulations and steeper yield curves (longer-dated yields have risen relative to shorter-dated bond yields). Steeper yield curves should help interest margins and profitability as banks tend to borrow over shorter periods and lend over longer periods. US banking shares have enjoyed healthy rises since the election on the back of decent quarterly results.

The report includes inspiring interviews with major donors, including:

 

·         Sir Jackie Stewart, three-time Formula 1 world champion

·         Lloyd Dorfman CBE, entrepreneur and Chairman of The Prince’s Trust

·         Nadja Swarovski, member of the Executive Board at the Swarovski Group

·         André Hoffmann, Vice Chairman of Roche Holdings

·         Anna Southall OBE, fourth-generation family trustee of the Barrow Cadbury Trust

 

We also outline some top tips for philanthropists, drawing on the experience of major donors and our philanthropy experts in the Coutts Institute [link: www.coutts.com/couttsinstitute].

 

We’ve been producing the report since 2008 to celebrate and inspire philanthropy and provide insight into major giving in the UK and internationally. While the report focuses on major giving, it provides food for thought for anyone involved with charitable endeavours at every level. 

The report includes inspiring interviews with major donors, including:

 

·         Sir Jackie Stewart, three-time Formula 1 world champion

·         Lloyd Dorfman CBE, entrepreneur and Chairman of The Prince’s Trust

·         Nadja Swarovski, member of the Executive Board at the Swarovski Group

·         André Hoffmann, Vice Chairman of Roche Holdings

·         Anna Southall OBE, fourth-generation family trustee of the Barrow Cadbury Trust

 

We also outline some top tips for philanthropists, drawing on the experience of major donors and our philanthropy experts in the Coutts Institute [link: www.coutts.com/couttsinstitute].

 

We’ve been producing the report since 2008 to celebrate and inspire philanthropy and provide insight into major giving in the UK and internationally. While the report focuses on major giving, it provides food for thought for anyone involved with charitable endeavours at every level. 

Risk assets rise on Trump victory

Key appointments point to pro-growth ambitions

As he prepares to assume power on 20 January with Vice President Mike Pence, there are more than 4,000 government jobs to fill. The key appointments President-elect Trump has made so far could provide some indication about the economic direction of travel.

During the election campaign, Mr Trump promised to boost the economy by cutting taxes and regulation, and increase spending on infrastructure. Although he railed against wealthy elites running the country, he also promised to nominate top businesspeople to his administration. In this regard, his decisions appear to be consistent with these pro-growth intentions.

One of these is Steven Mnuchin, who will become Secretary of the Treasury. Following almost two decades at Goldman Sachs, he worked with Soros Fund before eventually founding his own hedge fund company, Dune Capital Management.

Mr Mnuchin says he will oversee “the largest tax change since Reagan” by reducing the US corporate tax rate from 35% to 15% and cutting personal taxes. He claims these policies will allow the US economy to achieve an annual growth rate of 3% to 4%.

 

The risk of protectionism

Mr Trump also promised to protect US jobs through protectionist policies. But there are concerns this approach could negatively impact global trade and economic growth given proposals to repeal trade agreements and impose punitive tariffs on imports.

He also made illegal immigration a major issue, and the choice of Jeff Sessions for the job of US Attorney General could further this policy. During his 20 years in the Senate, Mr Sessions has been a leading advocate for tougher border control measures, ending illegal immigration and reforming immigration laws.

Other appointments include Wilbur Ross – an investor specialising in leveraged buyouts and distressed businesses – as Commerce Secretary, a position that will serve as the liaison between the White House and the business community. Although Mr Ross, who served under former US president Bill Clinton on the board of the US-Russia Investment Fund, supports the Trans Pacific Partnership, he has spoken out against free trade, “bad trade deals” and the decline of manufacturing jobs in America.

Meanwhile, Mr Trump has persuaded Indiana-based air-conditioning manufacturer Carrier to keep 800 jobs in the state rather than move them to Mexico. Indiana agreed to grant the company tax incentives and in return Carrier will invest in the state. 

Our positive view on bank credit has benefited from hopes for a relaxation of financial regulations and steeper yield curves, which should help interest margins and profitability

Foreign policy games

Mr Trump has already risked sparking a potentially damaging diplomatic row with China after speaking to Taiwanese president Tsai Ing-wen on the telephone. The call is thought to be the first between the leader of the island and a US president or president-elect since ties between America and Taiwan were severed in 1979.

It is unclear whether the decision was a deliberate signal to China ahead of potential negotiations about trade and currency values. However, Mr Trump is limited in what he can achieve alone because implementing or rescinding major trade agreements requires congressional backing. We believe it is in the best interests of both countries to avoid a trade war.

Amid allegations that Russia hacked emails to help him win the election, Mr Trump has nominated ExxonMobil CEO Rex Tillerson as his Secretary of State. Although he has no experience of formal diplomacy, Mr Tillerson has had dealings with Russia’s President Putin, having been a director of a joint US-Russian oil company.

Although the political establishment is still coming to terms with the idea of President Trump, businesses, and especially the financial markets, seem so far to have responded positively. And the Federal Reserve agrees with the positive outlook – lifting US interest rates by a quarter point to 0.75% at its December meeting amid signs of improving growth in the economy.

IMPORTANT INFORMATION

This webpage is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Past performance should not be taken as a guide to future performance.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

The information in this webpage is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by Financial Advice & Investment Solutions at Coutts and does not constitute investment research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

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