Wall Street veteran Scott Bessent’s nomination as US Treasury Secretary brings a “business-friendly face” to US President-elect Donald Trump’s coming cabinet, partly easing concerns about protectionist policies, says Standard Chartered.
Trump’s Treasury Secretary pick is a career fund manager who once headed iconic hedge fund manager George Soros’ family office. Given this background, Bessent’s policy outlook is likely to be less ideologically driven than some of Trump’s other cabinet nominations and more based on economic outcomes, says StanChart’s global chief investment office in its latest weekly note, released Nov 29.
Based on campaign promises, Trump’s primary economic objective appears to be broadening US growth by lifting real — or inflation-adjusted — incomes of middle-class Americans and bringing manufacturing jobs back to the US with significantly reduced immigration.
While Trump has proposed to impose high import tariffs against major trade partners, start mass deportations and implement stinging cuts to government departments, these extreme measures may end up hurting growth and reviving inflation, adds StanChart. “This is where Bessent’s economic agenda tries to square the circle.”
During the election campaign, Bessent referred to the late Japanese Prime Minister Shinzo Abe’s “three arrows” reflationary policies in the context of the US.
See also: Trump nominates hedge fund chief Bessent to lead US Treasury
- Bessent aims to lift US trend growth to 3% from around 2% through tax cuts, deregulation, reshoring of manufacturing jobs through “strategic protectionism” and by lowering energy costs.
- He also plans to cut energy costs and reduce inflation expectations by boosting US oil and gas output by 3 million barrels of oil equivalent per day through deregulation and making more land available for drilling.
- Finally, Bessent aims to cut the US budget deficit to 3% of GDP by the end of Trump’s four-year term, from over 6% this year, by lifting economic growth and cutting wasteful government spending.
Ambitious and aspirational
Bessent’s arguably aspirational agenda rests on gradualism, says StanChart. “For instance, he has advised using tariffs as strategic negotiating tools by imposing them in tranches, tying them with set objectives that US trade partners will have to meet, such as increasing imports from the US and investing in production facilities in the US.”
See also: Bessent as US Treasury secretary may give China breathing room over tariffs
Bessent has also warned against cutting US health insurance programme Medicare and social security payments, and instead focus on freezing discretionary, non-defence spending to reduce government expenditure to pay for the tax cuts.
Bessent’s “three-pronged plan” to deliver non-inflationary growth, while seeking to curb the fiscal deficit, is “ambitious in its reach”, says StanChart. “If implemented well, it is likely to be positive for risk assets.”
StanChart prefers to position for the improving outlook through US risk assets. “However, given stretched investor positioning in US equities, we would use pullbacks to average into our preferred areas.”
Bessent’s proposed non-inflationary growth agenda helps explain why US bond yields fell last week following his nomination, says StanChart. “We would use any rebound in the US 10-year government bond yield towards 4.5% to lock-in income over the longer term.”
Bullish on US equities
Bessent’s pro-growth policies are also likely to sustain the US expansion. We remain bullish on US equities over six to 12 months. However, US investor positioning is stretched, notes StanChart. “We would use any near-term pullbacks to average into technology and communications services, which are likely to benefit from strong structural demand and pricing power.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Despite higher non-US revenue share among names in technology and communications services, StanChart investment strategist Michelle Kam highlights the ongoing artificial intelligence megatrend and strong earnings growth in the sector.
“These sectors produce goods that cannot be easily replicated or replaced. We would view any near-term retreat in these sectors amid trade headwinds as an opportunity to add exposure,” adds Kam.
Meanwhile, the US financial sector is likely to benefit from the Trump administration’s plan to ease regulatory pressure on regional and community banks to enable them to revive lending, while US small-caps are likely to gain from more strategic protectionist policies, adds the London-headquartered bank.
“In contrast, we expect near-term headwinds in areas such as automobiles, amid threats of a 25% tariff on Mexico and Canada’s import to the US. In addition, sectors such as technology, materials and energy are also vulnerable to any further trade tensions,” says Kam.
More China stimulus
In China, StanChart prefers sectors with stable cash flows, low exposure to US tariffs and likely beneficiaries of Beijing’s stimulus.
US policies like tariffs are likely to have a limited direct impact on China equities’ earnings given they generate most (87% of MSCI China revenue) of their income domestically, says StanChart senior investment strategist Fook Hien Yap.
StanChart expects Beijing to unveil more stimulus in phases, likely starting with the upcoming Central Economic Work Conference, to offset the impact of potential US tariffs on China’s business and consumer confidence.
“However, we believe policymakers may prefer to calibrate the size of any stimulus after US policy details are unveiled, likely only after Trump’s inauguration. Furthermore, China is unlikely to rule out a negotiated outcome with the Trump administration,” adds Fook.
StanChart favours the “non-financial, high dividend-paying state-owned enterprise sector” for its stable income and less exposure to properties. The bank also prefers the Hong Kong-listed technology sector for its strong cash flows, share buybacks and position as stimulus beneficiaries.
“We focus on non-financials sub-sector, which are less exposed to the troubled property sector; and the Hang Seng technology sector for a valuation re-rating when more policy stimulus is rolled out,” says Fook. “Companies in this sector also generate strong cash flows, which are used for share buybacks. This barbell approach would provide exposure to income stability along with higher beta gains when China unveils more stimulus.”
Photo: Bloomberg
Charts: Standard Chartered
