Weeding out new opportunities

Prior to the recent US election, I believed that the significant grassroots support for legalisation of marijuana meant that its legalisation at a federal level was only a matter of time.  And in fact, the recent voter approvals in eight states reaffirm that the population as a whole would likely support such a move.  However, the recent announcement of Jeff Sessions as President-elect Trump’s candidate for Attorney General means Federal legalisation is no longer just around the corner.  As recently as April 2016, Mr Sessions was quoted as saying that “Good people don’t smoke marijuana”, so it is unlikely to be legalised under his watch.

I think that the tobacco industry is likely to be the most interested in marijuana as a source of future growth, with many companies already giving serious consideration to the crossover potential with vaping. But until it is legalised at a federal level, nothing can be done. Nevertheless, support among the general population is growing, and like gay marriage, we think it may be a case that over time overwhelming public support could sweep away previous social norms.

As for other international markets, moves are afoot to legalise marijuana for medical or recreational use in a variety of countries, including Canada, Germany, Israel, Mexico and Italy.

Watch this space.

Rosie Bichard – Newton, a BNY Mellon company

For a longer (pre-US election) article on this topic, head to Newton’s blog

Prior to the recent US election, I believed that the significant grassroots support for legalisation of marijuana meant that its legalisation at a federal level was only a matter of time.  And in fact, the recent voter approvals in eight states reaffirm that the population as a whole would likely support such a move.  However, the recent announcement of Jeff … read more

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Is the outlook for US financials brighter?

The vote for Brexit markedly lowered global growth and interest-rate expectations. As a result, company managements for US financials focused on cost-cutting and strengthening their balance sheets. We believe US financials are the cheapest sector and growing the fastest. During the third-quarter earnings season, some 76% of S&P 500 companies beat earnings estimates by around 5.6%, Financials beat estimates by 8%. Additionally, the third quarter was the first in over a year to show year-over-year EPS growth for the S&P 500, largely due the impressive 13% growth in financials.

President-elect Donald Trump could add additional fuel to the fire. If he deregulates the financials sector, it could remove a massive growth overhang. Expansionary policies, like increased fiscal spending, could also encourage rate increases. Financials are largely domestic and could benefit most from corporate tax reform, with estimates that a 20% federal corporate tax rate would drive earnings higher by approximately 18% on average. After undue punishment since the financial crisis, headwinds are turning to tailwinds, and we believe US financials are fundamentally stronger, undervalued and poised for a comeback.

John Bailer – The Boston Company, a BNY Mellon company

The vote for Brexit markedly lowered global growth and interest-rate expectations. As a result, company managements for US financials focused on cost-cutting and strengthening their balance sheets. We believe US financials are the cheapest sector and growing the fastest. During the third-quarter earnings season, some 76% of S&P 500 companies beat earnings estimates by around 5.6%, Financials beat estimates by … read more

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Supersized EM sovereign debt

The market for issuance of EM debt in 2017 will be cautious in our view. If you drew up a winners and losers list from likely Trump foreign policy, Saudi Arabia would likely be on the losers list. For the moment, the Saudis are able to spend money they already have to plug any gaps and won’t want to issue into weak demand.

Issuers will be in a wait-and-see mode and probably only the very desperate will issue early in 2017. Should things prove to be not as bad as anticipated then there may be a rush for issuance later in the year.

From what we can estimate from economic policy it will likely be inflationary, we can see this from the sell-off in US Treasuries. That is only going to push yields higher in EM debt, thus increasing the cost of borrowing and issuance.

 Carl Shepherd – Newton, a BNY Mellon company

To read more about expectations for 2017 read our market outlook

The market for issuance of EM debt in 2017 will be cautious in our view. If you drew up a winners and losers list from likely Trump foreign policy, Saudi Arabia would likely be on the losers list. For the moment, the Saudis are able to spend money they already have to plug any gaps and won’t want to issue … read more

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