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Sohn investors position for bullish but bumpy Trump ride

Markets will have to adjust to a world in which a new Donald Trump presidency will continue to ‘bash’ Xi Jinping’s China. Picture: AFP
Markets will have to adjust to a world in which a new Donald Trump presidency will continue to ‘bash’ Xi Jinping’s China. Picture: AFP

Australia and the rest of the world must adjust to a new Trump presidency that will deliver an expected bull market but also disruption, with the leader in waiting prepared to “create pain” to get his way, speakers at the Sohn Hearts & Minds conference warned on Friday.

‍It was an era in which Donald Trump would continue to “bash” China, but one where Australia might not need to choose between its ties with the US and China, unless there was a military conflict.

‍Fund managers and other experts from the US and overseas told the conference the world would also need to get used to a period of continued inflation, which would still see a further reduction in US interest rates but rates not going back to the near zero rates in the years leading into the Covid pandemic.

‍The conference, which raises money for medical charities, is now in its ninth year following its establishment in 2016 by Barrenjoey bankers Matthew Grounds and Guy Fowler and Sydney businessman Gary Weiss, with the backing of others including Geoff Wilson.

‍Attendees in Adelaide included Melbourne businessman Solomon Lew, former Reserve Bank governor Philip Lowe, and the former chief executive of Dow Chemicals, Andrew Liveris, who was there supporting his son, Anthony Liveris, from biotech investor Proto Axiom.

‍There was a clear message from global fund managers and experts speaking at the conference that the Trump presidency would mean the US would increase its dominance of the world economy both economically and as a global innovator, while Chinese growth would be hampered by an ageing population and ­investors wary of governance ­issues.

 

Clockwise from top left: Geoff Wilson of Wilson Asset Management, Howard Marks of Oaktree Capital Management and Wellcome Trust's Nick Moakes.
Clockwise from top left: Geoff Wilson of Wilson Asset Management, Howard Marks of Oaktree Capital Management and Wellcome Trust's Nick Moakes.

Oaktree Capital Management co-chairman Howard Marks said he expected the US sharemarket rally, which has been boosted by the Trump election, to continue.

‍“Presidencies benefit (share markets) most of the time,” Mr Marks said.

‍“Regardless of (who is in the White House) the presidencies have been beneficial most of the time. The stockmarket goes up most of the time.

‍“It probably has less to do with the presidency, and more to do with the (US) economy and our great companies. We should expect that to continue to hold.”

‍But he said that the US had never had a president like Mr Trump, who was “likely to perform outside the regular bounds”.

He said Mr Trump’s recent cabinet appointments, such as the appointment of Democrat Robert F. Kennedy Jr as the US secretary of health and human services, had raised questions about what a Trump presidency could be like.

‍“This time the Cabinet appointments are much more unusual and unconventional than the announcements of eight years ago,” Mr Marks said.

‍He was upbeat on the overall prospects for the US. “We can’t be Pollyanna, but I think we can be optimistic,” he said.

‍“The US economy is the envy of the world, and likely to stay that way. We have a great combination of free markets and economic dynamism, creativity, rule of law, personal freedoms, and deep capital markets.

‍“On the other hand, our leaders are not demonstrating fiscal responsibility. We haven’t had a budget surplus since Bill Clinton left office 24 years ago. We’re not threatened with having a budget surplus any time in the foreseeable future.”

‍Mr Marks, who was speaking from Beijing, said the Trump presidency would see a continued strong anti-China stance.

‍“Trump is an avowed China basher,” he said.

‍He said there was a broad consensus in the US on the need to take a hard line with China.

‍“Trump will continue to come out swinging with regard to China,” he said. “It is a winning strategy to bash China.”

‍He said the rise of the Chinese economy had meant that the US faced an economic rival but not one that would overtake the US in the near term.

‍“The US has an economic rival for the first time in the last century and China will continue to be an economic rival in size, but not in quality of life or per capita income,” he said.

‍Mr Marks said the US had “survived and actually thrived in the first Trump administration”.

‍“So I am willing to give the benefit of the doubt to the second,” Mr Marks said. “We actually did quite well as investors.”

‍He said Mr Trump had been elected on a policy of holding down inflation, but his policies on tariffs were widely expected to put pressure on inflation.

‍Speakers warned that Australia would need to find its way in an increasingly tense US-China relationship with Mr Trump present to deliver on his policies of imposing new tariffs on imports from all countries, rising to as much as 60 per cent on goods from China.

Mr Marks said he did not think Australia would need to choose between the US and China, but this could change in the event of military conflict involving China.

‍The National Security Agency chief under the Trump administration, Admiral Mike Rogers, said Mr Trump would continue with his strategy of “creating pain” when it came to dealing with China.

‍Mr Trump has threatened to impose tariffs of at least 10 per cent across the board and as high as 60 per cent on goods from China.

‍“President Trump is the one who started down the road of direct confrontation with China,” Admiral Rogers said.

‍“He said if you want to change behaviour, you need to create pain. That is how we’re going to change things.

‍“Tariffs, while they can be a tool to create pain, they (can also) drive changes in behaviour.”

‍But the admiral said people also needed to learn to differentiate between what Mr Trump said and what he did in practice.

‍He said Mr Trump’s recent picks for the US cabinet showed his determination to disrupt the status quo. The picks were “symptomatic” of Mr Trump’s determination to bring about change in the administration of the US government.

‍He said Mr Trump was a businessman who believed he needed to take bold action to bring about change that was outside the norms of the US political process.

‍“One of his primary mechanisms is to disrupt the status quo,” he said.

‍“I don’t expect that to change.”

‍“The argument, in his mind, is that the norm doesn’t change things.”‍

 

Admiral Michael Rogers addresses the Sohn Hearts & Minds conference in Adelaide on Friday. Picture: Ben Searcy
Admiral Michael Rogers addresses the Sohn Hearts & Minds conference in Adelaide on Friday. Picture: Ben Searcy

Admiral Rogers said that Mr Trump would not be an isolationist president in a military sense, but he would push harder for other countries including in ­Europe to spend more on defence.

‍“He believes that America should have the ability to respond, if necessary (to military threats) and to send a signal that the US has a lot of capacity (to respond),” Admiral Rogers said.

‍“But he has also argued that, in his mind, some of his predecessors have become involved in military situations where he questions, why are we sending in the US to do that?”

‍Speakers argued that while there were more cuts to come in global interest rates, they were not going to come down to levels seen in the early years of Covid.

“The financial commentary, and actually quite a lot of investors, assume that we’re going back to a place of low interest rates, where the norm is 1 or 2 per cent rates,” the chief investment officer of the London-based Wellcome Trust, Nick Moakes, said.

‍“That’s bullshit,” he said.

‍Mr Moakes, whose charitable trust manages more than $70bn in assets, said the trust had issued 100-year bonds at rates of just 2.5 per cent and 1.5 per cent in the past.

‍“The bonds that we’ve issued all trade now with an interest rate of, roughly speaking, 5 per cent – and that’s much more realistic,” he said. “So that’s a world that we all need to get used to, and it’s got implications for everything.

‍“It’s got implications for private equity. It’s got implications for discount rates that you use to value stocks.”

Howard Marks said expectations that 2024 would see as many as six cuts in US interest rates had evaporated, with only two this year, which could be it for the rest of the year. “We are going to see a slower path to lower rates,” Mr Marks said.

‍The conference covered themes of artificial intelligence, and the rise of bitcoin.

‍Travel was a major theme with recommendations of Corporate Travel Management, by IFM’s Rikki Bannan, off the back of the recovery in global business travel, and European manufacturer Airbus by Vihari Ross of Antipodes Partners, arguing that its narrow-bodied planes would be the future of aviation travel.

‍Two Chinese companies were tipped – with New York-based Beeneet Kothari of Tekne Capital Management tipping Chinese rideshare company Didi, which he said was set for listing on the Hong Kong Stock Exchange, and the Singapore-based Samir Mehta of JO Hambro Capital Management tipping Tencent Music.

‍Speakers spoke across the range of industries including artificial intelligence, healthcare and the future of space as an industry.

‍“In 10 years’ time space will just be another place to do business,” said Eric Lasker, chief revenue ­officer at Varda Space Industries.

‍The conference was opened by South Australian Premier Peter Malinauskas, who urged attendees to see the state as one where the government was ready to do business with the private sector.

‍Speakers deciphered a range of industries, including AI, healthcare and the future of space as an industry.

‍Galaxy Digital chief executive Mike Novogratz, speaking from New York, predicted huge innovation in the blockchain sector in the next five years as companies focused on further intensive decentralisation. Star stock picker Alex Pollack, of Sydney’s Loftus Peak, was exuberant about the potential of drugmaker Eli Lilly.

And Ellerston Capital’s Chris Kourtis put his name behind a turnaround in one of the most unloved ASX 200 stocks: fund manager Perpetual.‍

This article was originally posted by The Australian here.

Licensed by Copyright Agency. You must not copy this work without permission.


Disclaimer: This material has been prepared by The Australian Financial Review, published on 15 November 2024. HM1 is not responsible for the content of linked websites or content prepared by third party. The inclusion of these links and third-party content does not in any way imply any form of endorsement by HM1 of the products or services provided by persons or organisations who are responsible for the linked websites and third-party content. This information is for general information only and does not consider the objectives, financial situation or needs of any person. Before making an investment decision, you should read the relevant disclosure document (if appropriate) and seek professional advice to determine whether the investment and information is suitable for you.

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