MarketEye: Why Trump’s popularity is up c.5% since start of the year

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise.

In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant increase over the same period. If you see a neighbour that is doing really well and you feel you are struggling then that is when people tend to get dissatisfied.

This period has also coincided with the post-financial crisis recession and the slowest recovery from a recession in close to 100 years. Populism was seen as one of the key drivers behind the election of President Donald Trump in November 2016, but it is not solely the US that has seen it rise. Changes in the type of manifesto individuals are elected on can bring changes in policy, which in turn has an impact on stock markets.

Now we have a ‘populist’ president and he has different policies and methods of communicating with the electorate. He is seen as controversial, but despite his style and approach, he has been successful in terms of getting some of his key policies enacted. Apart from Obamacare reform, he has succeeded in lowering the corporate tax rate, allowing US companies to repatriate earnings at a low tax rate, and commencing regulatory reform.

We view the majority of his headline policies as pro-growth and pro-business and therefore see opportunities in the US equity market.

Chuck Cook – portfolio strategist. BNY Mellon Asset Management North America 

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise. In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
The US$3.8trillion bond sector you might not even know about

This past year, 2017 leading into 2018, the US saw a lot of significant weather events and climate disasters. It saw three hurricanes: Harvey in Texas, Irma hit Florida and Hurricane Maria in Puerto Rico. The combined damage of those three hurricanes was around US$203bn. That has an impact on the economies of those states, the infrastructure of those communities and their tax and revenue bases.

The US also saw tornados, flooding, and on the east coast, serious winter storms. Forgotten vocabulary is coming back into the lexicon, like ‘bombogenesis’, which means bomb cyclone. The east coast of the US was hit with two of those in 2017/18 – the last time it had storms of that sort was several decades ago.

The states suffering from such climate crises really know the impact of climate change and what it can do to their communities. So in response to the Trump administration’s withdrawal from the Paris Accord, several states started the Climate Alliance. California, Washington and New York kicked it off, then were joined by 13 others (plus Puerto Rico). Their goal is to meet the Paris Accord targets – to decrease emissions by 26% to 28% from a 2015 base line by 2025.

The GDP of these states makes them comparable to many sovereign economies – California has a GDP approximately the size of France and New York is equivalent to Canada. They also have their own constitutions, law-making abilities and taxes. To fund infrastructure projects, which include climate change initiatives, they issue bonds.

These so-called municipal bonds are a diverse set and have already funded a huge amount of US infrastructure maintenance and renewal. At US$3.8 trillion, the municipal bond market is almost half the size of the US corporate bond market and we don’t see it getting smaller, particularly as the challenges of managing climate change continue or, potentially, intensify.

Dan Rabasco – Chief Investment Officer for Tax Sensitive Fixed Income. BNY Mellon Asset Management North America 

This past year, 2017 leading into 2018, the US saw a lot of significant weather events and climate disasters. It saw three hurricanes: Harvey in Texas, Irma hit Florida and Hurricane Maria in Puerto Rico. The combined damage of those three hurricanes was around US$203bn. That has an impact on the economies of those states, the infrastructure of those communities … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
Tobacco: a slow-burn success story?

For all the challenges the industry has faced tobacco has remained attractive for investors. Now, in the face of ongoing litigation, a crack-down on advertising, smoking bans, and even plain packaging, the industry is reinventing itself through new heat-not burn and vaping products.

We continue to believe these could create an inflection point for the industry, offering a route out for smokers looking to quit harmful combustible cigarettes but also allowing tobacco companies to build new revenues with products that are less detrimental to health.

Should they succeed we see tobacco producers continuing at the apex of a market where competition is limited and where profitability consequently remains extremely robust. In our bull-case scenario, smokers will consider the risk/reward dynamics of their habit and decide to migrate en masse to next-generation products. The significantly reduced harm of these new products keeps them in the category – meaning the combined volumes of combustibles and next-generation products stabilise or even rise.

Amy Chamberlain – global analyst. Newton, a BNY Mellon company

For all the challenges the industry has faced tobacco has remained attractive for investors. Now, in the face of ongoing litigation, a crack-down on advertising, smoking bans, and even plain packaging, the industry is reinventing itself through new heat-not burn and vaping products. We continue to believe these could create an inflection point for the industry, offering a route out … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
Dispelling the myth: Volatility can be positive for returns

In 2017, the global economy transitioned from a period of sluggish, US-dominated growth, to a more synchronised global recovery. With inflation still well behaved, corporate earnings grew strongly, buoying both equity and credit markets and suppressing volatility, which reached historically low levels.  So far, 2018 has proved more challenging for some investors. Volatility spiked in the first quarter, driven by the unwinding of US volatility products and then compounded by an increase in global trade tensions and profit taking in US technology stocks. Unanticipated volatility spikes generally hurt in the near term, but they can also offer opportunities. Although generally short lived, the fear of loss among investors drives risk appetite downwards, and derivatives markets become dominated by those looking to hedge against downside risk. As a result, risk premia in option pricing can become elevated and this can create greater opportunity for alternative, option-based strategies to deliver positive returns.

Steve Waddington – portfolio manager. Insight Investment, a BNY Mellon company

 

In 2017, the global economy transitioned from a period of sluggish, US-dominated growth, to a more synchronised global recovery. With inflation still well behaved, corporate earnings grew strongly, buoying both equity and credit markets and suppressing volatility, which reached historically low levels.  So far, 2018 has proved more challenging for some investors. Volatility spiked in the first quarter, driven by … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
Weaning China off credit addiction

The Chinese authorities are galvanised to lower the dependence on credit of its economic model so that less credit is needed to generate an increment of GDP growth. Notwithstanding recent efforts to infuse more durable liquidity in to the banking system, going forward, heightened financial oversight of the on- and off-balance sheet usage of credit and further state owned enterprise restructuring will be the norm. This is already achieving some headway. The share of bank deposits as a percentage of Chinese GDP and that of aggregate total social finance (a proxy for on- as well as off-balance sheet lending) have already begun to decline. This development highlights the effectiveness of financial tightening as well as the regulatory crackdown on shadow banking.

Aninda Mitra – Senior Sovereign Analyst. BNY Mellon Asset Management North America

The Chinese authorities are galvanised to lower the dependence on credit of its economic model so that less credit is needed to generate an increment of GDP growth. Notwithstanding recent efforts to infuse more durable liquidity in to the banking system, going forward, heightened financial oversight of the on- and off-balance sheet usage of credit and further state owned enterprise … read more

  • Download
  • Print
0 comments | Join the conversation, comment now