We have never seen such an action-packed start to a new US administration period. Foreign, internal and trade policy is being overhauled with a decisive wave of executive orders, taking markets repeatedly by surprise. Domestically, businessman Trump looks at public finances like a company. With too many liabilities, the balance sheet does not add up. The government’s P&L is not healthy, with too many expenses and not enough revenues. As President, Trump intends to fix this, which in itself is not a bad idea. The chosen instruments, however, we believe are highly questionable from an economic point of view. Tariffs risk being inflationary, detrimental to growth and painful for the purchasing power of the less privileged. Snubbing long-time allies and not upholding trade agreements might impact market sentiment in a costly way, resulting in less capital flows.

The incredible intensity of policy measures is currently driving a sharp pivot in global stock allocations, away from the US and toward Europe and emerging markets. To us, this represents a rebalancing, and a nascent correction of the large valuation premium the US has established in the past decade. The sizable spending plans by European governments make the region suddenly more attractive. Policy responses in China should benefit that market as well, as described with a tennis analogy in Wim-Hein Pals’ emerging markets outlook piece. We have shifted the portfolios accordingly and remain agile enough to take opportunities when they come as conditions are changing quickly.

In this time of rapid change, we must also be mindful of staying invested in future economic drivers. Trip notes (page 10) from our global portfolio manager Yanxin Liu’s recent visit to San Francisco remind us that the engine of innovation in Silicon Valley is still running fast, and Nvidia’s recently revealed USD 500 billion capital investment plan confirms that. The productivity acceleration we anticipate from technology application across the global economy is still to manifest, and that will drive real economic and investment returns. There is little chance though that markets will go up in a straight line this year.