Trump’s election victory has sent a global shockwave, mixing positive demand and negative supply elements in his policy rhetoric. There remains considerable ambiguity about the actual mix of Trump’s policies. Since it is too early to extrapolate Trump, it is best to assess his policies through the prism of three scenarios: the “good”, the “not so bad”, and the “ugly”.

1. Market Watch – December 2016
Trump’s election victory has sent a global shockwave, mixing positive demand and negative supply
elements in his policy rhetoric. There remains considerable ambiguity about the actual mix of Trump’s
policies. Since it is too early to extrapolate Trump, it is best to assess his policies through the prism of three
scenarios: the “good”, the “not so bad”, and the “ugly”.
The “good” scenario is the current world we live in, but with the addition of Trump’s fiscal thrust and big
deregulation. The “ugly” scenario is one in which Trump expands fiscal policy but with the unintended
consequence of inducing more inflation than growth. Trump tries to deregulate but fails and he has to
go on trade wars to steal growth elsewhere. The “not so bad”– between the “good” and “ugly”
outcome – is our base case and the more probable scenario: characterised by moderate fiscal policy
and some deregulation.
The broader ramification of Trumponomics for investing is that it creates fatter tail outcomes - either very
good or ugly - which translates into higher uncertainty and wider ranges for asset returns in 2017.
As we transit into the New Year, there will be heightened market uncertainty with several key risk events.
Markets will be watchful of Trump’s key appointments and as he unveils his economic policies. The Fed is
likely to hike rates for a second time, which has been priced into the markets as almost a certainty. Not
forgetting that there is an Italian referendum on 4th December that could introduce more market volatility.
Due to the ambiguity from Trump’s policies, we remain vigilant in our investment stance. We want to
hold more cash as it can be deployed if there is a good opportunity ahead (from a “good” outcome),
and higher cash holdings would mitigate any negative outcome from an “ugly” scenario.
At the same time, we want to reduce leverage, in the event that there is an “ugly” outcome which can
dramatically impact leverage positions.
We want to add portfolio diversifiers - non-correlated and non-traditional strategies - such as hedge
funds and private equity that can increase portfolio diversification.
We are moderately defensive in our asset allocation and continue to prefer credit over equity. On
credit, we do not foresee credit spreads widening significantly, as any fiscal stimulus would delay
recession risk. As a result, we are turning less bearish on developed market high yield bonds. However,
we are careful not to take on too much bond duration risk. As Trump’s policies are tilted to benefit the
US, we are bringing our call on US equities to neutral from underweight while keeping our underweight
for Europe, Japan and Asia intact.
Prepare yourselves for Trumponomics, we are now living in a brave new world!
Marc Van de Walle
Global Head of Products
Trumponomics: A Brave New World
STRATEGY FX
Overweight cash and
stay cautious on risk until
policy direction is clearer
after the US election
FIXED INCOME
Focus on yield by
accepting some credit risk
but cautious on duration
as risk-free rates rise
Level shift higher in USD
against EUR and JPY,
not resumption of
sustained uptrend
EQUITY
Underweight all equity
regions except US on
political uncertainty and
demanding valuations

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