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No ‘shy’ Trump investor, just game-changer doubts

Our round-up of the week’s best comment and analysis from the Financial Times focuses on how Donald Trump’s election produced an abrupt change of mood in the markets and examines which assets will now benefit.

The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.

Was there a financial markets equivalent of the “shy” Trump supporter to explain why investors went from fearing the worst to being immediately buoyed by the election of the US property tycoon to the White House?

The FT’s Miles Johnson argues that the evidence points more to markets realising “some of the things a Clinton victory were expected to bring, such as higher interest rates, were likely to also arrive with Mr Trump. The idea of his victory marking a game-changing moment may be illusory.”

US and emerging market investors are taking opposing bets on Trump’s presidency, says Allianz’s Mohamed El-Erian, adding that favouring EMs over American assets might now be warranted, but risks still remain.

In contrast, the FT’s John Authers argues that lower corporate tax would be an unambiguous positive for the US stock market and searching for underpriced companies that stand to benefit should repay the effort.

“There is a justification for share prices to rise sharply, despite huge headwinds from the dollar and the bond market, if investors believe a big corporate tax cut is a racing certainty.”

In his weekly Long View column, John focused on how after Mr Trump’s win, developed world institutions are fragile. “If governments fail to deliver growing prosperity or — more importantly — even a sense of fairness, the critical institutions can weaken swiftly. That is the greatest risk at present.”

Ben McLannahan, the US banking editor, examined how Neel Kashkari, president of the Federal Reserve Bank of Minneapolis has unveiled a plan to safeguard the biggest banks. “The way Mr Kashkari sees it, various reforms since the crisis have not got near to ending the problem of ‘too big to fail’. His solution is simple: more equity to absorb losses. Lots more.”

Meanwhile, the FT’s Henny Sender highlights that Trump’s pledge to generate faster economic growth through tax cuts and infrastructure spending is bringing what many believe is a turning point for the bond market.

Caution over the Trump trade of selling bonds because huge government borrowing is on the way may be misplaced, the FT’s Dan McCrum argues.

“Yet the bond market lesson, to always buy bonds, has been learned in a world where central banks were the only institution that mattered. Very few were trading in 1994, when 10-year bond yields jumped 200 basis points in the space of five months.”

But China’s A-share equity markets are a good long-term bet in light of the new Shenzhen-Hong Kong Stock Connect, says Morgan Stanley’s Jonathan Garner, as such exposure can be a useful risk diversifier to a global portfolio.

“Our work suggests that the A-share equity markets are already more mature and less a universe apart than is widely perceived. Over time, they will probably take a significant weight in global investor portfolios.”

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