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Pathway to deregulation

US equities continue to rally this week on continued optimism of increased fiscal spending by the Trump administration when they take office. For what has for many months been depicted as a disaster scenario in investors’ eyes is now turning into an opportunity to invest on increased beliefs of US growth and higher inflation as a result of Trump’s new policy measures.

As stated by Australia’s Prime Minister Tony Abbott, ‘the US is not an island’, hence exiting the Pacific trade deal is at the detriment of the counterparties and not the US, who stand to gain by imposing new trading tariffs and repatriating foreign based local manufacturing plants.

China is a strong candidate in line to gain from a US exit as the remaining trans-pacific members could seek lower trading tariffs with the largest manufacturing and exporting economy in the world. This could be beneficial and well needed for China’s GDP growth rate, whose rising credit burden and lower future growth expectations are starting to make investors uneasy.

Russia too could bounce back as a result of a Trump presidency. The current sanctions imposed on the country could be eased if not lifted should relationship ties between Russia and the US take a turn for the better. Russia’s economy predominantly benefits off energy and arms exports. The improving forecasts for oil prices is positive news to Russia whose energy intensive corporations have underperformed since 2014, who along with the EU imposed sanctions, have brought Russia to the brink of recession.

Although oil price forecasts are positive, skepticism has arisen on the recent OPEC agreement in curbing oil production. Trump has even vowed to renounce cutting the US’s own oil and gas production once he steps into office. Hence, the path energy is to take in the next couple of weeks may give mixed results.

Global politics in 2016, has seen pro-business anti–establishment figures gain popularity. France’s recent Centre right primary elections saw Francois Fillon surprise the polls and knock out previous president Nicolas Sarkozy from the race to set up a final secondary vote against Alain Juppe on Sunday, with the victor most likely to challenge Marine Le Pen to the French presidency in early 2017.

Fillon himself is a pro-business figure and his campaign centres on austerity measures in reviving the French economy. Similar to Trump, albeit on a smaller scale, Fillon proposes cutting corporate taxes amongst other beneficial measures to aid businesses and is in favour of closer ties to Russia.

Following Brexit, Trump’s election, Renzi’s potential constitutional reform rejection in Italy and France’s next president most likely being a centre right or far right candidate, global economies could see protectionism  increase  as the era of increasing globalisation may be reaching its peak. The deregulation and alleviation of restrictions on businesses will, in my opinion, become the new central theme of global politics.

Hence, global economic growth as a result of all the above points may very well have a positive future. Whether global political relationships as a result of more conservative measures have the same effect however is up for debate.

Disclaimer: This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. 

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