Given the noise generated by the US government in many areas, some people feel that the risks are increasing. In fact, what is happening on the market can be described as wise: the US noise is being ignored.
Donald Trump Has Lost Most of His Credibility
Threatening gestures that were once effective have now been recognised as a weak tactic. As long as Donald Trump is concerned about the performance of the stock markets, any theatrical thunder is just that: fake.
It is possible that Trump will decide to do some very questionable things. While there is a risk of this happening, I consider it to be low.
The Result Is a Very Positive Environment for Emerging Markets
- Real interest rates are high and will fall
- Currencies are appreciating, so inflation will continue to fall.
- Interest rates will be lowered to stimulate investment and consumption.
- Rising tax revenues will curb the growth of government debt and enable targeted investments.
- Geopolitics remains a key driver, supporting commodity prices and energy sources
- The shift in political orientation to the right, especially in Latin America, suggests that the affected countries (Chile, Colombia and Venezuela, for example, as well as probably Brazil and Argentina) will adopt a more business-friendly approach.
- In Asia, development continues to be positive, accompanied by expansion in China, Japan, and South Korea, but also in Europe and the USA.
- Global portfolio flows are shifting, increasingly directing capital toward Asia, Latin America, and Europe.
- The weakness of the USD that began last year ends the 15-year cycle of appreciation of the USD against (almost) all other currencies.
As always, a turning point is not apparent at first. The USD’s appreciation over the past 15 years has led to extremely distorted exchange rates, which are now unsustainable and will result in prolonged and significant counter-movements.
This Means the Following for Exporters:
Hedging will burn cash flows and is only advisable in specific cases, such as professional opportunism, or for a significantly smaller part of the business.
This Means the Following for Importers:
Due to the high interest rate differential, hedges generate additional income for several years. Although exchange rate corrections are possible, they should not permanently erode the interest rate differential. Ideally, it makes sense to hedge at least part of the business in advance for the next 2–3 years, as well as hedging as much as possible on a rolling basis for the current fiscal year.
This Means the Following for Raw Materials Buyers:
Imagine that we are at the start of a long-term trend of rising commodity prices. Global investment and consumption will continue to increase, perhaps even excessively. To gain control over your costs, it is advisable to increase hedging activities for listed materials and use proxy hedging for unlisted ones.
