US exceptionalism in equities could be prolonged, should the new Trump administration implements the tax cuts as promised, says Maybank Group Wealth Management Research in its Nov 7 note.
Analysts note that a “red sweep” is “likely better for the US”, following the conclusion of the US Presidential election on Nov 6.
They add that the “victory” of Donald Trump should alleviate election uncertainty and allow investors to refocus on fundamentals.
Notably, the proposed reduction in corporate tax rate from its current 21% to 15% could boost U.S. corporate earnings by around 5%, they say.
US banks could benefit from stronger economic growth and looser regulation, while industrial stocks could also gain as Trump’s planned tariff hikes could result in further reshoring of manufacturing activities, the Maybank analysts add.
They note that Trump has also expressed intentions to increase US defense spending, which could benefit defense-related companies.
See also: What Trump 2.0 means for investors
“In contrast, the election outcome is less positive for emerging markets, particularly China,” says the analyst. They expect the Chinese government to implement more support measures to mitigate Trump’s plans to impose a 60% tariffs on Chinese goods.
“All eyes are now on the National People’s Congress (NPC) standing committee meeting, which is scheduled to conclude on Nov 8,” they say.
However, large domestic markets like India and Indonesia should be less affected by Trump’s plans to impose blanket tariffs of up to 20% on other trade partners.
The analysts anticipate that the US Federal Reserve (US Fed) will likely proceed with a 25 basis points cut on Nov 7, but the pace of subsequent rate cuts could be more gradual should growth or inflation turn out to be higher than expected.
“We see upward pressure on US treasury yields in the near-term though the inflation risk may not be as bad as feared. Notably, US headline inflation did not exceed 3% during Trump’s first term presidency. The negatives may have also been partly priced in with the 10 year US treasury yield up by about 1% from its lows of 3.6% in September,” they add.
Should the Fed rates continue to trend lower, the US dollar strength may continue to persist in the near-term, they note. This will weigh on gold prices but the metal will likely be supported by sustained central bank demand in the medium-term.
The analysts add that although there will be downside risks, particularly on trade and inflation, actual policy implementation may diverge from election promises.
“Hence, we would avoid overreacting to the election outcome while keeping an eye on Trump’s cabinet formation and policy developments,” they say.
Maybank retains its positive stance on both US and Asia ex-Japan equities, with the macro outlook still supportive of risk assets, and view any overshoot in bond yields as an entry opportunity to add quality credits.
