Impact of Donald Trump’s Policies on Global Economy
Chief Investment Officer of DBS Bank, Hou Wey Fook, predicts that the world economy will be influenced by the geopolitical landscape and the policies of US President Donald Trump. Looking forward to 2025, Hou Wey sees a complex and nuanced global economic and geopolitical environment that is difficult to comprehend fully. Particularly, the recent US presidential election is expected to have a broad impact on markets and risky assets worldwide.
With the Republican Party controlling both the Senate and the House of Representatives, the Trump administration now has a clear mandate and significant power to drive any policy agenda on Capitol Hill, whether it be tax cuts, climate change, or border security. The assumption that a recession would soon occur and sharp interest rate cuts by the US Federal Reserve (the Fed) are no longer valid, according to Hou Wey.
Expert Analysis and Outlook
On the other hand, the macroeconomic momentum in the US is expected to increase rapidly as Trump aims to fulfill his promises regarding tax cuts and expansionary fiscal spending. Despite the ongoing growth optimism, there is significant uncertainty surrounding the presence of Trump 2.0. This uncertainty pertains to the fiscal continuity (or lack thereof) of his policy plans and the potential for a trade war due to proposed tariff increases.
In the context of expansionary fiscal policies and heightened geopolitical tensions, Hou Wey believes that a barbell approach in portfolio construction, combining high-risk assets with risk-free assets, is the right strategy to adopt. This can be achieved by taking extreme positions, such as seeking exposure in sectors with the highest beta and leveraging the potential of Trump’s expansionary policies, while also looking for exposure in the most defensive asset classes to protect portfolio performance from the negative impacts of Trump’s policies.
Investment Strategies and Recommendations
To address Trump’s expansionary policies, DBS CIO has upgraded its rating for equities from below-average performance to neutral. The bank continues to maintain an improved performance rating for US stocks due to the upcoming tax cuts expected to boost corporate margins. Sectorally, DBS CIO remains supportive of US technology stocks due to their secular growth potential and high beta value, which is 1.4 times that of global stocks over a 10-year period.
Meanwhile, to mitigate the risks of a trade war, DBS CIO retains a significant portion of fixed income investments as they provide protection against price declines if trade tensions escalate beyond expectations. The risk-return ratio is also attractive, with bond yields returning to 4.4 percent.
DBS CIO also maintains a below-average performance rating for European equities as they are expected to underperform, given that US tariff increases will force Chinese exporters to redirect their goods to non-US markets, thereby increasing competition.
Long-Term Outlook and Conclusion
Beyond the policy fluctuations in Capitol Hill, it is crucial to consider long-term macro factors that will determine market direction beyond the short-term noise surrounding Trump’s presidency. Hou Wey believes that risky assets will continue to be well-supported by factors such as controlled US economic slowdown, a strong labor market, and low interest rate ratios, protecting companies from trade tensions and supporting robust corporate margins. Additionally, the rapid advancements in artificial intelligence are expected to drive significant productivity increases in the coming years.
