What happened in the last month?

In focus: the big Trump trade

Donald Trump, 78, is elected by a large majority as the 47th President of the United States. During the campaign, he survived two assassination attempts and was convicted of various felonies only to end up defeating the Democratic candidate who had replaced Joe Biden, Kamala Harris. The result of the presidential election could have a major impact not only on the future of the US, but also on the global economy and on financial and capital markets generally. For his new term, he promises more oil production, a tough immigration policy, higher import tariffs, and less regulation and lower taxes for big business. The planned measures could lead to higher fiscal spending and protectionism, and overall to stronger growth and inflation. They would include the imposition of a 10-20% tariff on all imported goods and a 60% tariff on Chinese goods.  As European growth is already more fragile than that of the US, a possible trade war could further worsen the growth prospects of the European continent and its supplier, Hungary, as well as China. Trump’s agenda also includes making the US federal government much more efficient and thus cheaper. The world’s richest man, Tesla founder Elon Musk, will help achieve this, promising to cut public spending by $2,000 billion through a major efficiency drive.

 

Equity market news

The world’s stock markets may continue to rise. Especially in the US, where the S&P 500 index, which tracks the change in average stock prices on the New York stock exchange, rose to an unprecedented high of over 6000 points after the presidential election. Which is no wonder: Donald Trump’s planned measures could be accompanied by significant fiscal spending and protectionism, leading to stronger growth overall. And this could also have a positive impact on share prices. The US investment bank Goldman Sachs estimates that the planned cut in the corporate tax rate from 21% to 15% would boost the profits of S&P 500 companies by around 4%. The “America First” policy and the imposition of import tariffs could also assist smaller-cap local firms, and result in the outperformance of the US equity markets relative to those of emerging markets (such as China) and of Europe.

The stock markets of Central and Eastern Europe may also receive a major boost from the Trump victory. If the president, who will take office in January, were indeed to end the Russia-Ukraine war in a single day as he has promised, the price of regional shares could shoot up. The Hungarian stock market, for example, with a forward P/E of around 5.5, is 40% cheaper than the long-term average due to the “war discount”, and the region as a whole is underpriced by around 25%. With Trump’s election, the share prices of OTP Bank and Raiffeisen, which have a major presence in the region, have already jumped.

Bond market news

US and European, as well as regional, yields rose as economic and political uncertainties increased: the 10-year benchmark dollar bond yield rose to 4.3% (from 3.6% in mid-September), while the yield on German government bonds of similar maturity rose to 2.3%. At the same time, the yield on Hungarian government forint bonds reached 7% at the end of October.  Although risk premiums have largely been priced into bond yields, investor sentiment remains cautious: investors are still waiting for clearer guidance on potential policy changes from the Trump administration. The past may be about to repeat itself: The first two years of Trump’s presidency of 2017-2021 did, after all, see a significant rise in yields, and this is what investors now fear will happen again. The new economic policies, which are expected to increase inflation, could well preclude any further rate cuts. In Central and Eastern Europe, interest rate cuts have likewise been removed from the pricing outlook, but relative valuations in the region have improved only marginally. This suggests that in the absence of clear macroeconomic support, investor confidence remains subdued.

Alternative investments news

World commodity prices remain stagnant: it remains to be seen what will trigger the next bull market. The USD 1,400 billion fiscal stimulus package for economic development announced in China, a major commodity buyer, has so far disappointed investors, as it aims to resolve the problems of local government debt management, but does not include measures to boost consumption (the Hang Seng stock index in Hong Kong closed 1.5% down on the day of the announcement). Another trade war is imminent under the new US president, and the new US tariff policy is adding to economic uncertainty around the world. It’s too early to expect a sustained rise in the price of oil or copper, arguably the most important commodities; only gold is likely to rise. The price of the precious metal, considered a safe haven, has risen more than 30% since the start of the year – we’ve realised some profit on it ourselves – and the current minor correction could present an opportunity to buy the dip.

 

What can we expect in the coming period?

Investment outlook

Investment clock – recovery

The global Investment Clock is currently pointing to a recovery, but the state of the various sub-markets is showing a notable divergence: the US and the European Union are on an upward trend, whereas China remains in recession. In the US, key economic data is improving: although the jobs market has been weakened by the recent hurricanes and strikes (in October, a total of 45,000 people walked off the job at 14 major ports on the East Coast alone, ports that handle a million containers a month), the slowdown in inflation has allowed the base rate to be cut, which is helping growth through cheaper credit. In Europe, the unemployment rate fell to an all-time low of 5.9% and inflation decreased to 1.7%, below the central bank’s target, paving the way for the European Central Bank to cut its base rate by another 25 basis points. At the same time, China has still not recovered its strength: due to a decrease in internal demand and to policy drift, the economy is expanding at a slower rate than planned (currently 4.6%). The growth rate of Chinese GDP is forecast to be even lower next year.

The clock indicator denotes the current economic cycle phase. Faded indicators reflect the previous situation.

Tactical Asset Allocation

The weights indicate the evaluation of the respective country, region, and asset class, providing a basis for portfolio managers in structuring portfolios and establishing positions, thus helping to capitalize on market opportunities.

Weights:

Changes – change compare to the the previous month

The table was prepared based on our investment clock and quadrant modell**.

 

Focus fund

VIG Opportunity Developed Markets Equity Fund

 The current positive investment opportunities of the VIG Opportunity Developed Markets Equity Fund are underpinned by the following economic events and trends that are positively impacting equity markets. Developed markets, particularly the US and the EU, are showing strong signs of growth, and this is having a positive impact on stock performance. GDP growth and rising corporate profits are boosting demand for equities. The low unemployment figures are leading to an increase in consumer confidence, which is stimulating demand and economic activity. Higher consumer spending is generally good for companies’ performance, leading to an increase in share prices. Positive quarterly results and profit warnings published by companies are boosting investor confidence, which is resulting in increased demand for equities. Continued development and innovation in the tech sector is creating new opportunities that could lead to share price growth. Investments in new technologies makes equity funds more attractive. The interest rate cuts and monetary easing measures planned by central banks are improving liquidity, which is also helping to boost equity prices.

 

Disclaimer

This is a distribution announcement. In order to make well-founded investment decisions, please inform yourself thoroughly regarding the Fund’s investment policy, potential investment risks and distribution in the Fund’s key investment information, official prospectus and management regulations available at the Fund’s distribution outlets and on the Fund Manager’s website (www.vigam.hu). Past returns do not predict future performance. The future performance that can be achieved by investing may be subject to tax, and the tax and duty information relating to specific financial instruments and transactions can only be accurately assessed on the basis of the individual circumstances of each investor and may change in the future. It is the responsibility of the investor to inform himself about the tax liability and to make the decision within the limits of the law. The information contained in this leaflet is for informational purposes only and does not constitute an investment recommendation, an offer or investment advice. VIG Asset Management Hungary Closed Company Limited by Shares accepts no liability for any investment decision made on the basis of this information and its consequences.