Global markets sold off overnight, as political risks outweighed corporate earnings strength offshore.
Trump has continued to spark controversy, most recently with his orders around banning immigration from certain countries. A busy start to the Presidency, with Trump’s “executive order” strategy has increased uncertainty and risk aversion among investors. Investor concerns are that Trump may follow through with isolationist policies touted on the campaign trail, overshadowing the administrations pro-growth agenda.
As we have pointed out in the past, now that Trump has taken office and started to govern, his administration’s economic plans will become more clear. We would expect these dynamics to fully play out at least over the course of 2017, if not longer.
Once again, taking a bigger picture view, given the strong move higher in markets, we would be hesitant in broadly buying stocks at the current juncture and would not be surprised to see some consolidation in markets. In saying that, we continue to recommend investors hold a “normal” allocation to stocks, although we are selective in what we own.
ASX & NZX – Back to Earnings
Looking ahead, sentiment will be dominated by the local earnings season across Australia & New Zealand – which kicks off today. During earnings season, the focus of investors generally shifts away from economics and broader issues, and back to company profitability. One area which will be watched closely will be earnings across the Australian mining sector. As we highlighted last week, forecast that Australia is set to grow at circa 3% in 2017, helped by a rebound in the mining sector. We expect New Zealand to keep expanding at a growth rate of approximately 2.5% for the year ahead and expect the key growth driver of Tourism to remain solid.
While political noise from the US in particular can affect investor sentiment, Australia and NZ are largely insulated from political developments abroad. However, one area we are watching and discussed in our year ahead outlook report is developments on trade, as Australia & NZ are largely exporting nations.
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