USNov 15 2016

Invesco’s Laing says Trump achieved where Fed failed

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Invesco’s Laing says Trump achieved where Fed failed

Donald Trump has managed to achieve in three days what the Federal Reserve has been trying to do in three years, according to Invesco Perpetual’s Simon Laing.

Last week’s US election saw Mr Trump beat Hillary Clinton to the presidential post, an outcome that caused the yield curve to steepen, which Invesco’s head of US equities pointed out the Fed has been trying to achieve for years. 

Such a steepening suggests markets believe the new president could make the US long-dated debt a riskier asset. This is potentially due to expectations of  fiscal policy increasing borrowing or a sharp rise in inflation due to protectionist trade policies touted by Mr Trump during the campaign.

A rising yield curve might be bad news for long-dated bond investors as the value of their bonds are going down (though their income increases), but Mr Laing argued Mr Trump’s policies are positive for growth in the US economy, and said it was important to understand what is "under the hood" at the sector level.

He pointed out that many technology companies have been getting "clobbered" in the aftermath of the US election, and that he is starting to flag these up as "interesting areas" to invest in.

Whereas banks, which have routinely traded below book value, could well see valuations go a lot higher from here, he said.

But Mr Laing said he is "still nervous" about the healthcare sector, which investors had been expecting would be negatively affected if Hillary Clinton became president after she spoke of lowering the cost of some prescription drugs. 

Despite the certainty of a Trump presidency, Invesco's head of US equities said the costs in that industry are a structural burden that "need to be dealt with" and that corporates, not consumers, will bear the burden.

Dissenting voices such as the head of Hermes Investment Management warned the damage President Trump could inflict on the US economy is "underestimated".

But Mr Laing said the Republican president’s policies are pro-growth and inflationary, adding: “You don’t have to like Trump to think his policies will be good for the economy.”

For example, he pointed to Mr Trump’s pledge to cut back on regulation and his assertion that too much regulation is a “growth-killer”.

“In a lot of areas, regulation has gone over the top,” he said, pointing to banks in particular which he said would benefit from the US government easing the regulatory burden.

 None of these indicators suggest we are heading towards an economic Armageddon Simon Laing

The Invesco head said Mr Trump’s foreign policy pledges are the “wild card” and possibly the biggest worry from an investor’s perspective, he questioned whether these policies will come to fruition because they need the support of Congress.

“The Republican Party would not want trade barriers put up with China; it would be very bad for global economic growth and is not good for the US.”

“Trump talks about creating jobs in the US but there are other ways to do that without stepping on the toes of his allies.”

The president-elect said he wanted to inject about a trillion dollars into US infrastructure over the next 10 years, but Mr Laing questioned how.

“The US needs infrastructure and there is a lot that can be done to help create jobs ad boost productivity, though we are uncertain because it’s not clear how it’s going to manifest itself.”

He also said most economic indicators look positive, including low oil prices, wage growth, employment rates, and national house prices.

“None of these indicators suggest we are heading towards an economic Armageddon,” he said.

But Mr Laing said the “real” worry is that Mr Trump doesn’t carry the support of his own party, adding: “For Trump to do what he says he is going to do then he has to have the support of the Senate.”

“This was a vote for change, and we have to look at the events since the election to understand what Trump is going to become,” he said, pointing to the president-elect’s decision to bring in establishment political players.

“I see it as good news that he is bringing in people who can set some boundaries; he has recognised he is going to have to toe the line somewhat.”

eleanor.duncan@ft.com and katherine.denham@ft.com