Preview
In focus: Donald Trump headed to the White House
Donald Trump is the US president-elect. With the Republican Party taking the majority in the Senate and potentially also in the House, a red sweep of both chambers of Congress is probable. If this outcome is confirmed, the president-elect will have a clear path to implement his policies, which will likely center on his priorities of lower taxes, higher tariffs, deregulation and tighter immigration control.
Portfolio managers at Templeton Global Equity Group (TGEG) believe lower taxes should be a boon for US corporate margins and earnings growth. Higher tariffs may lead to the reshoring of domestic manufacturing but could spell trouble for companies relying on global supply chains, including some in the industrials, consumer and technology industries. We also expect a focus on infrastructure development, with the oil and gas sector among the potential beneficiaries, while deregulatory efforts may bode well for the ”big tech” and banking sectors.
Investment outlook
In North America, a Trump presidency will have some clear implications for US companies, in our view. Lower corporate taxes should bode well for US businesses in broad terms, but higher tariffs will pressure sectors reliant on offshore supply chains—information technology, industrials and consumer sectors may bear the brunt of the impact. A more favorable regulatory environment may take shape, potentially to the benefit of US banks and big tech companies. However, sectors tied to renewables and energy transition may face increased headwinds as the new administration may ramp up focus on developing traditional energy infrastructure.
In Asia, the implications of the outcome of the US presidential election are broadly negative. We see the technology and consumer sectors as among those that may be affected by higher US tariffs, if implemented. Asia is the backbone of the global information technology sector, with multiple key semiconductor and hardware suppliers. Higher tariffs—and a scramble to diversify supply chains beyond countries hit by said tariffs—could lead to price inflation. Meanwhile, the performance of Asian banks bears watching, and we keep in mind that Singapore and Indian bank stocks outperformed during the president-elect’s previous term. Japanese banks should continue to benefit from the Bank of Japan’s normalization of monetary policy, a trend well secured by the upward trajectory of long-term US rates, regardless of the election outcome.
In Europe, weak economic indicators and depressed sentiment continue to weigh somewhat on the consensus outlook for European equities. The US president-elect presents additional challenges for US-Europe relations, global trade prospects and geopolitical security in the region. However, our core investment views here remain largely intact.
Market review: October 2024
Global equities, as measured by the MSCI All Country World Index1 in US-dollar terms, collectively declined in October 2024. Developed market and frontier market equities fared better than the global index, while emerging market equities underperformed it. In terms of investment style, global growth stocks performed modestly better than global value stocks.
Global stocks declined amid investor concerns about economic growth and the path of major central banks’ interest-rate easing cycles, along with uncertainty about the upcoming US presidential election in early November. On the economic front, global manufacturing activity generally remained weak in October, while flash reports for the same month indicated services activity continued to expand in many regions.
Endnote
- The MSCI ACWI captures large- and mid-cap representation across 23 developed markets and 24 emerging markets countries. Indexes are unmanaged and one cannot directly invest in them. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. There can be no assurance that multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods.
Active management does not ensure gains or protect against market declines.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.
Diversification does not guarantee a profit or protect against a loss.