Panel, Conference Presentation
Part 2: Global Capital Markets
- Tax reform is anticipated to occur in 2017 through reconciliation or legislative compromise, with the expectation that corporate tax cuts will be easier to implement than the tax cut component, though a border adjustment tax is viewed as highly complicated due to supply chain constraints and potential adverse trade distortions.
- Infrastructure investment is projected to spur economic growth by up to 2%, contingent on the country's development stage, with hopes for administration support comparable to the interstate highway system era to validate current market convictions.
- A competitive corporate tax structure is expected to spur investment, attract manufacturing back to the U.S., and create employment, while regulatory rollbacks are anticipated to improve transparency, market liquidity, and efficiency without compromising safety and soundness, specifically by amending burdensome reporting requirements like the Volcker rule.
- U.S. economic growth is deemed essential for global expansion, with the economy expected to remain resilient despite low GDP reports of 0.7% showing reversible one-off effects, while the Federal Reserve is on course for two more interest rate hikes this year and aims to disclose a balance sheet wind-down plan by September.
- The dollar is viewed as a potential headwind for growth if Europe lags, prompting a warning against protectionism, while low interest rates are expected to persist for a while, encouraging asset allocation into emerging markets and infrastructure debt to find incremental yield.
- Technology and automation, including robotics and AI, are predicted to revolutionize society and disrupt labor markets within the next 10 to 20 years, necessitating a re-evaluation of primary and secondary education to prepare for future job requirements, while blockchain offers significant opportunities for financial services with concerns for poorer countries' competitiveness.
- Market participants express concerns regarding the administration's ability to deliver on trade policy and healthcare reforms before year-end, fearing that delays or a failure to implement changes could cause the market to doubt the administration or grow tired of waiting, potentially leading to a loss of optimism.
- Risks include a military confrontation involving North Korea, Congressional failure to implement changes, and the difficulty of achieving trade policy objectives with China in a short period, alongside the need for institutional investors to be more tactical in valuations that are generally rich during the late expansion cycle.
- Global growth is expected to feel more stable compared to 12 to 24 months ago, with China appearing stable and European growth improving, creating opportunities for diversification in Europe and emerging markets despite private debt accumulation risks in certain countries.
- Financial services and manufacturing sectors are expected to perform well under the new administration's policies, with large banks particularly poised for gains, provided that clear and transparent rules allow institutional investors to address lending gaps opportunistically.