What are the big-picture implications? There are a number of key issues… 

• Immediately, the quickest impact we should see is a strength in the US dollar as post-election sentiment on a pivot on immigration, taxes, and trade is seen to spur higher US growth and inflation. But this is likely short-lived and will immediately correct as a Fed rate cut this week will shift the trend. 

• US equities is seen to cheer the result and in fact the S&P 500 is up 3.6% to new record highs. The equity market is cheering the Trump election also brought a Republican control of the Senate and Congress. This means that Trump can pass policies much easier than the divided government in his first term. 

• We should also expect the centerpiece of a Trump administration: the return of a trade war with China. Trump has pledged a 60% tariff on Chinese imports and a 10% universal tariff. This could prove more inflationary than his first term since there are still imbalances in supply and demand in the global economy since the 2020 start of the pandemic. Hence, the magnitude of inflation is, at this time uncertain, but will likely be inflationary over time. 

• Trump also favors lower rates. Recall that during his first term, Trump pushed the Fed quite aggressively to push rates into negative territory, but the Fed held its policy rate to a historic low of a range of 0.0-0.25%. So, we should expect a bias from the Trump administration to support rate cuts.

• Immigration, another centerpiece policy of Trump, is expected to return to the first Trump administration which can help wages in the US but also have implications on overall employment as vast number of immigrants tend to do the low-income labor-intensive occupations. 

• Expanded oil drilling is one policy plan that Trump emphasized in his victory speech as he outlined the vast oil reserves off the US coasts that remain untapped, and he is willing to exploit. This could signal lower energy prices and could dampen a possible inflationary tariff policy that Trump plans to impose. 

• Finally, the status of geopolitical conflicts like Ukraine-Russia and Israel-Iran remains unknown how these will be resolved as Trump consistently claimed during the campaign that he can “quickly resolve” these wars. But if these are resolved, it would be a great net positive gain for global inflation as oil and wheat prices will no longer have a conflict-related premium overhang.

What does this mean for our funds? 

For our fixed-income funds, our portfolio managers give their views below… 

• The Republican sweep in the Senate and Congress will enable Trump to enact his plans on tax cuts and tariffs. This implies a higher term premium as these are pro-growth and potentially inflationary.
• In our opinion, the Fed will continue with its easing and may surpass what is currently priced in by the Fed funds futures’ market. We are still looking at the Fed to deliver 125-150 bps worth of cuts in the next 12 months. Fed funds future’s is pricing in only 100bps worth of cuts.  
• The market sentiment for local government securities (GS) is affected by the upward move in US Treasuries and volatility on the Foreign Exchange space. At current levels, local GS remains attractive for accrual and, potentially, capital appreciation, once election volatility dissipates.
• We think BSP will continue to be data dependent when deciding its next actions. Data points to inflation and growth environments supportive of further rate cuts. However, BSP will most likely have the Fed’s cutting pace in mind, given the volatility in the Foreign Exchange (FX) space.
• Term premium models adjusted higher leading into the elections, as odds favored Trump. Elevated rates present good value, especially since the cutting cycle remains intact. Volatility, specifically, on term premium pricing, will likely remain. Hence, we favor short-intermediate parts of the yield curve.
• At current levels, local GS remains attractive for accrual and potentially, capital appreciation once election volatility dissipates. 

Meanwhile, our domestic equities team has these observations… 

• We take the view that the Trump win will buoy the global equity market rally, given expectations of pro-business policies. This is on top of a continuing rate cut path by the Federal Reserve.

• Near term, the US dollar’s strength and tariff hike concerns may put pressure on Emerging Markets, though medium-term demographics and earnings growth differentials remain favorable for Asia.

• The Philippine equity market valuation of 12.8x P/E (-1.3sd) remains attractive relative to regional peers and is anchored by expectations of further corporate earnings growth.
• We remain constructive on the Philippine equity portfolios given the skew towards the large banks, which look to benefit from upcoming Reserve Requirement Ratio (RRR) and policy rate cuts by the Bangko Sentral ng Pilipinas (BSP). Other notable positions include market leaders such as Ayala Land and Jollibee, which are quality proxies for the domestic economy.

And our global funds team’s views are below… 

• Trump’s win is supportive for global equities, specifically for the US market, which benefits from lower corporate taxes, deregulation, and protectionism.

• Meanwhile, the rest of the world may be challenged by a tighter trade policy and the US dollar’s strength.

• Inflationary concerns may resurface on higher budget deficits, which could slow down the US Federal Reserve's policy easing.
• Our global funds are positioned to ride this election outcome, as we are overweight on global equities, specifically the US, and underweight on Europe and China.