One Bull Case Says Election Politics End Up Stoking Stocks
(Bloomberg) -- A $473 billion manager says the biggest threat to the rally in equities is also the reason it won’t be derailed.
Moves by U.S. President Donald Trump to escalate trade tensions with China or introduce measures targeting European countries would result in “meaningful impact” on stocks, according to BNP Paribas Asset Management. But that’s unlikely to happen, the money manager says, because a strong market will help Trump’s campaign to win a second term.
The S&P 500 Index rose to a record earlier this week, and is up 27% from a December low. Stocks continued their climb after a trade truce at the G-20 summit in Japan last month, where Trump said he would hold off imposing an additional $300 billion in tariffs on China and delay restrictions against Huawei Technologies Co.
“A rising market is clearly supportive of President Trump’s re-election efforts,” Ligia Torres, the firm’s chief executive officer for Asia Pacific, said in emailed comments. “Equities should continue to appreciate.”
U.S. and Chinese senior officials spoke by phone on Thursday in Washington, the second call since the summit. No details were released on what was discussed.
Trump’s interest in the U.S. stock market has been apparent in his tweets over the past two years. In February, he said his administration was “bringing back America faster than anyone thought possible,” as the Dow Jones Industrial Average and Nasdaq Composite Index rallied more than 40% each since his election win. He has tweeted about stocks at least 10 times since the start of 2018, according to data compiled by Bloomberg.
Additionally, BNP Paribas Asset sees little chance of a U.S. recession for now, according to Torres.
“With inflation low and stable, there is little prospect of the Federal Reserve raising rates and thereby choking off the recovery,” she said. “A recession will certainly arrive at some point in the future, but we do not believe it is an immediate risk.”
Torres, who became Asia-Pacific CEO in 2016, said she’s also optimistic about the outlook for the region’s shares. The MSCI Asia Pacific Index has lagged behind its U.S. counterpart this year, but it’s still up almost 10%. “Encouraging” earnings growth, attractive valuations and likely Fed interest-rate cuts will all support Asian stocks this year, she said.
“We believe focusing on fundamentals remains the vital point,” Torres said. “Asia presents a demographic dividend, as demographics tend to be relatively favorable, younger, with a growing middle class and increasing working population still coming through.”
Still, Torres points out that, despite her optimism, the long-term global macro picture is “not necessarily extremely bright.”
“PMIs in most countries are decelerating and several are below the critical threshold of 50, separating expansion from contraction,” she said. “The key variable in the outlook remains the trade tensions between the U.S. and China. If those diminish, as we expect, then the outlook looks reasonably positive.”
(Updates with U.S.-China talks in fifth paragraph.)
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