Talking PointNov 14 2016

Buxton is bullish about Trump

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Schroders
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Supported by
Schroders
Buxton is bullish about Trump

Richard Buxton, head of UK equities at Old Mutual Global Investors, has predicted Donald Trump’s revolution will be positive for the US – and global – economy.

The manager of Old Mutual’s £2.12bn UK Alpha fund has claimed Donald Trump’s shock victory in the US elections may turn out to be the start of a sea-change in global economic and monetary policy.

Far from signalling the end of the world, Mr Buxton said there may be many benefits for investors from the star of the US version of The Apprentice becoming the next president of the US.

Mr Buxton, who is currently holidaying on the West Coast of America, said the television coverage of Mr Trump’s triumph is dominated by “revulsion, incredulity and reaction”.

He said unlike many commentators for whom Mr Trump’s victory is being cast as a disaster, he disagreed that this would be the outcome of the real estate magnate taking charge of the US.

Mr Buxton said: “Yes, this is a sea-change. Yes, there are many uncertainties ahead. Yes, to a generation brought up on the beneficial impacts of increased globalisation of trade, the prospect of throwing that multi-year process into reverse is scary. But consider the following. 

“This is the end to the Washington consensus, to the era of 'Davos Man', to the belief that an elite knows best how to manage the global economy.”

Mr Buxton said this is the high watermark of central bankers. 

From here, Mr Buxton said they will gently decline from being financial gods – arguably more powerful even than elected politicians, markets trembling on their every word – to officials, public servants of the common good.

Mr Buxton said: “For those of us who believe that central bankers have led us up a blind alley, this can only be good news. 

“Negative interest rates, negative bond yields, central bank purchases of corporate bonds at yields well below those of the same company's equity yield…this is Alice in Wonderland central banking. 

“The trouble is that for those central bankers promoting such policies, there is no exit route. To abandon such untried and untested policies would be to lose face, and that is the ultimate 'no go' policy option for them.

Three cheers that sanity has prevailed in a democracy through the unlikely candidate of Donald Trump.Richard Buxton

“So, three cheers that sanity has prevailed in a democracy through the unlikely candidate of Donald Trump. Central banks, starting with the US Federal Reserve, will learn that they are not the ultimate source of power in government.”

A return to positive interest rates, to positive yields, to an incentive for savers to save and to creating a real cost of capital for entrepreneurs will all be hugely positive consequences of this electoral revolution, Mr Buxton said. 

In terms of protectionism, Mr Buxton said he has found himself increasingly persuaded that the mantra of 'fair trade' not 'free trade' is right. 

Mr Buxton said: “The world was able to cope when relatively small trading nations used a mercantilist model to buy their way into markets and raise their living standards. 

“But it cannot cope with a country the size of China running the same model. China now has such a dominant position in terms of productive capacity in basic goods that the world does not have enough demand to meet the supply.

“China knows this. It is embarking on the transition to higher consumption, services and financial services, away from basic goods. But it is doing so slowly, as it cannot give up its instinctive tendency to export cheaply to the world. 

“Here, too, maybe a sea-change US government might be beneficial in making it clear that China has benefited too long from its policy mix. Maybe it needs to accelerate its domestic reform agenda, both closing excess capacity in basic goods and promoting asset-light services.”

His victory isn't as bad for markets as many may think. We'd just exercise a bit of caution.Darius McDermott

But Darius McDermott, managing director of Chelsea Financial Services, said it us hard to be super bullish on US equities when valuations are where they are. 

Mr McDermott said: “The market is trading at the top of its range and we are underweight the US in our portfolios. 

“However, it is possible that the market will continue to rise a bit further as different parts of the market could now lead the way: energy, defence, those infrastructure projects, for example, not to mention possible corporate tax cuts across the board. 

“So we'd agree his victory isn't as bad for markets as many may think. We'd just exercise a bit of caution."

emma.hughes@ft.com