The past year has been marked by one political showdown after another. 2016 has been year when the unthinkable became reality.
The US and global economy is yet to feel the true impact of Trump being elected, but markets have reacted reasonably positively in the short term. Where Donald Trump’s policies align with Republican policy (such as tax cuts and deregulation within the financial services sector), it’s likely they will quickly become reality. It is hoped that this in turn will boost business confidence, resulting in innovation, investment and ultimately growth. That said, there could be issues with funding Trump’s plans, and the realities of implementing some of the pre-election talk on trade could derail the “Trump Rally”.
Turning to the UK, in the recent Autumn Statement, the UK Government took a similar pro-growth stance, officially abandoning austerity. Their intention to invest heavily in infrastructure across the UK (particularly that which enables innovation), as well as capping welfare spending, shows their commitment to improve GDP over the longer term and address the UK’s productivity problem. In the short term though, that means greater government spending and therefore borrowing.
Despite a year of huge political change equity markets have remained resolute. We see no reason to believe that markets will be adversely affected in the short term, although they are likely to remain volatile for the foreseeable future as they come to terms with ongoing fiscal change.
Meanwhile, inflation expectations are on the rise and the investment challenge is to take advantage of investment that reflect the changing global political background.
We remain cautious and continue to seek opportunities for our clients as they present themselves.