The election of Donald Trump as US President could lead to a faster pace of interest rate hiking from the Federal Reserve, according to Ian Pizer.
In an outlook piece, Pizer, who is head of investment strategy and co-fund manager of the Aviva Investors Multi-Strategy Target Return fund, said the US economy had grown thanks to tighter labour market conditions.
'With this economic backdrop of a return to above-trend growth, robust labour market, rising wage growth and inflation, the election of Donald Trump as the next President has the potential to “turbo-charge” the reflationary environment,’ Pizer said.
‘We expect he will deliver a fiscal stimulus of around 0.5% of GDP over the next couple of years, reflecting a combination of tax cuts - individual and corporate - and infrastructure spending. At the same time, there is the potential for protectionist measures against Mexico, China and/or others.’
Pizer added that the political environment under Trump remained uncertain and it was possible his administration may not oppose the new President’s policies and cause stagflation, harming the US economy.
'If he were to impose punitive, unilateral, across-the-board tariffs on Chinese and Mexican goods, then the knock-on consequences for the US and the rest of the world would be damaging. In the past, trade wars have been to the detriment of everyone and we see no reason why that would be different should it happen again. It would also add to inflation pressures.
'On immigration, Trump has said he would be far more aggressive in deporting illegal immigrants. If he were to follow through on claims to rapidly deport several million, the resulting shrinkage in the labour force would be negative for growth and inflationary,' he said.
Away from the US, Pizer said Malaysia was also facing a mixed outlook. The economy had performed well and grown thanks to investment and domestic demand. However, inflation could fall and lead to a cut in interest rates by the Central Bank of Malaysia (BNM).
'However, the BNM may find it difficult to cut rates while the currency is selling off aggressively. But the BNM has not done itself any favours. Amid the currency and emerging market global sell off in November, it decided to limit trading in the currency’s non-deliverable forwards market, precipitating an even larger sell-off.'
'At this point it will be difficult for the BNM to regain investor confidence. In addition, an election may be called in early 2017. This could add to market jitters given the current political landscape,' he said.
Over a year to the end of December 2016 the Aviva Investors Multi-Strategy Target Return fund lost -3.22% in euro terms. This compares with the average manager in the Multi-Strategy who lost 1.4% over the same time frame.
At the end of September last year, Modern Investor revealed that the £3.33 billion Surrey pension scheme invested in the AIMS, after fully divesting from the well-known SLI Global Absolute Return Strategies (GARS) fund.