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Donald Trump was laughed at when he bragged about the success of his presidency at the United Nations General Assembly on September 25. Photo: AFP.
Opinion
The View
by Richard Harris
The View
by Richard Harris

Who’s laughing now? At least on the US economy, Trump is doing a pretty good job

Richard Harris says all signs point to a broad-based market rally. Indeed, Trump would win any poll today based on the strength of the US economy. And Chinese markets can recover quickly once good sense prevails in the US-China trade war

Market sentiment has ebbed and flowed significantly over the third quarter of the year, including in the United States.

Most news seems to have emanated from the smartphone of President Donald Trump and markets have had days of concern and weeks of contentment, resulting in a reasonable summer for investors. Most independent observers will grudgingly admit that whatever Trump has done, intentionally or accidentally, it is working at the moment. If there was a poll taken today on the economy alone, he would win by a landslide.
His narrow victory on last year’s giveaway tax bill gave the markets a sugar rush, though it might also become a debt headache for America’s children. Over the last quarter, he got Mexico and Canada to accept a new – or at least newly renamed – trilateral trade agreement. Never a modest man, he felt further emboldened to brag about the success of his administration at the United Nations General Assembly, though the world’s leaders just laughed at him.

Still, the Dow and the S&P 500 should wipe some smiles off the leaders’ faces, having risen 8 per cent and 9 per cent respectively for the year to date. Nasdaq is up 16 per cent this year, and the Russell 2000 index of smaller companies, 8 per cent.

Watch: Why did Donald Trump tweet ‘No collusion’ at 1am?

Closer to home, the picture this year has been grimmer. The Shanghai Stock Exchange is down nearly 15 per cent, while the smaller-cap Shenzhen index is down a massive 24 per cent. Hong Kong has lost nearly 10 per cent. Investors’ pain is intensified by the 5.2 per cent fall in the Chinese yuan versus the US dollar.
It is clear from the metals prices that the Chinese economy is slowing down. Trump threw his tariff tantrums as the Chinese government was getting tough on unregulated lending. Copper and gold prices, often an indication of Chinese demand, are down 15 per cent and 12 per cent respectively this year.

The US dollar is still a bully in a bull market even though the dollar index is below its recent highs. Given the insolubility of Brexit, the euro has lost 3.5 per cent this year and sterling, 3.8 per cent. British leader Theresa May’s Brexit proposals have been thrown out by the European Union, French President Emmanuel Macron has slammed the Brexit proponents as “liars”, German leader Angela Merkel looks increasingly lost, and EU negotiator Michel Barnier seems intent on punishing Britain for leaving the European Union. Increasingly, it looks as though there will be no deal.

Unusually, the French stock market is outperforming the German one. Global demand for French luxury goods seems undiminished by talk of a widening trade war; the luxury-oriented French index is up 3 per cent this year, while the German index is down 5 per cent. Meanwhile, the Japanese index has quietly crept up to a 27-year high.

Shoppers pose for a picture in front of the French luxury boutique Chanel, in Shanghai. The luxury-oriented French stock market index is up this year. Photo: Reuters

In the last quarter, Russia was hit by US sanctions “from hell” for Moscow’s interference in the 2016 US election. The rouble is down 12 per cent versus the US dollar this year, though the Russian index is up 3.6 per cent this year.

The only real market instability has been where bad governance has fostered inflation and destroyed confidence. The languishing Turkish lira has lost up to 45 per cent of its value against the US dollar for the year to date, but the Argentine peso has collapsed further, by up to 56 per cent. However, the yellow jersey for incompetent economic management goes to Venezuela, where the bolívar has depreciated by 95 per cent against the US dollar.

All the focus on Trump means that not much attention has been paid to other problems. This suggests that, at the first whiff of a trade deal, the European and Chinese markets could recover very quickly.

Will Chinese and US trade negotiators Liu He and Steven Mnuchin resume talks soon? Time will tell. Photo: Kyodo

Trading partners will eventually swallow their pride and come back to the table. It is the true world order, and it will be an easier discussion than Brexit. It is the basis of a broad rally, likely in the coming quarter, or the next.

As the old joke goes, my summary is that, in the long term I’m in cash, in the medium term, I’m in equity – and in the short term, I’m in whisky.

Richard Harris is a veteran investment manager, banker, writer and broadcaster and financial expert witness. www.portshelter.com

This article appeared in the South China Morning Post print edition as: A broad rally to look to
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