That means that transformative change that had been anticipated under a blue wave is unlikely with the use of executive orders to dictate policy here to stay. So what does this all mean for the global economy and markets? So John, the US election outcome appears headed for a divided government.
And we haven't seen a new president with the same Congress since Ronald Reagan was president. Risk markets have rallied since the US elections. And there is this common presumption that a divided government is good and a united government is bad when anticipating asset market trends over a president's term.
Is this the right way and the right framework to think about the market outlook? How are you looking at Biden's inheritance and the market tendencies for the next four years? It seems to be the perspective that is dominating a lot of thinking around what way markets should go over the next few years.
It's not the only way to look at things. Another way to look at things is to realize that every president receives an inheritance, the set of economic conditions and market valuations that greet the president when he comes into office.
And because there is a mean reversion tendency in the business cycle, the profit cycle in market valuations, maybe the best predictor of which way markets go over that four-year term is, what was the starting point? And from that perspective, I'd say Biden's inheritance, i. Biden is not inheriting an economy in recession. He is inheriting an economy that's starting an expansion. But maybe more importantly, he's inheriting a set of market valuations that, to me, give a fairly clear bias he's inheriting an equity market that might look expensive in absolute terms, but is still quite cheap relative to bonds, that inclines equities to outperform bonds over the next two to four years of whatever kind of Congress we see.
And when we look at credit markets, they're at average valuation levels that inclines them, to me, to tighten, but not deliver above average returns. And finally, when we look at the level of the trade weighted dollar, it's expensive relative to history. That inclines it to move lower. So maybe the hand he's been dealt isn't as extreme as the one that greeted President Bush in with a unified government, where he took over when a recession was just starting, and asset markets were very rich.
It's not maybe as good a hand as Obama was given when he took over with markets at near historic lows in terms of equity levels and equity PEs. And so I want to ask you, how are you looking at the economic conditions right now versus the market valuations? And which markets do you think actually offer us the best value?
This is mainly around virus developments, which are very obvious in Europe in terms of the impact on the economy, very obvious in the US in terms of the movement of the virus, and less obvious in the macro data. So there's an issue here that really needs to be settled within the next two to three months, is, is stimulus going to be sufficient to offset the impact of the virus, or is the virus going to dominate?
But I do think if you're willing to look through that uncertainty, which could persist for two or three months, I do think the global economy is set for still another year of above trend growth next year. This is mainly around stimulative monetary conditions. This is around the possibility of some fiscal stimulus early next year, even if it's not as big as the fiscal stimulus that we probably would've gotten under a Democratic sweep.
So there are reasons to think that people should be focusing on a return to normal activity in a couple of years and a lot of depressed sectors in a way they couldn't really have envisioned that before some of the vaccine news came out. So there are definitely reasons to be very hopeful over the medium term. I think that's why some of these valuation problems that people identify are maybe not such huge problems. Some people are bothered by the level of PEs in the equity markets.
Some people are bothered by how much markets have gained share when the economic recovery is incomplete. But basically, a very simple principle of investing is, as long as the economy is growing around trend or probably better, the markets are probably going to retire. So you can kind set aside your concerns that they might be too rich, as long as you can believe there's economic momentum in the activity data, as long as you believe the policy environment is still stimulative.
That doesn't mean you can't have drawdowns over the next two or three months because of some of these complications I've mentioned around the virus and around fiscal policy. But it does mean that the path over the course of, say, the next six months or 12 months is definitely higher.
If you had to choose stuff that was very interesting right now, simply because it's cheap, I would say that's a lot of the EM complex, but it's really that the EM currencies. This isn't an environment where EM broadly is cheap on an equity basis or a rate basis or a credit basis or a currency basis. It's really only on the currency basis. So that's, I guess, the deep value across the big asset classes.
There is also deep value within equities if you focus on style investing, and our equity team has been very positive on that rotation for awhile. It certainly gets a leg up with the vaccine used today. But I think even with a smaller fiscal stimulus at some point next year, plus the vaccine story coming online, plus lockdowns easing in Europe, that still is going to deliver. It may not deliver to the full extent that people might have been hoping when the sweep was their base case.
So that's the way I would kind of frame things. And a final thought, though. If I had to flag just a big risk into year end, it's squarely on the virus and how it interacts with fiscal policy. The vaccine new is very important. Today, it's going to be hugely important over the next six months as it starts to be deployed.
But it's not really going to be deployed so quickly in the next couple of months that it's going to change the course of activity. What's really going to impact activity at the year end is, what does the virus? Do how does that motivate lockdowns? To what extent is that offset by fiscal policy? So it's that whole interaction I think people need to watch pretty closely in terms of managing risk into the end of December.
JOYCE CHANG: Well, so it is very clearly, then, a risk on rally, which we have seen in the last few days that still has some momentum to continue in the equity markets with more attention actually now focused on whether emerging markets and some other asset classes with yield can also benefit. So what do you think would be the priorities in terms of policy for executive orders? And do you have any thoughts on cabinet positions?
Well, neither party is going to get the 60 supermajority that is required. So executive orders were going to be in play in any event. But there's a big difference between what needs legislation and what can be done under executive order. Now still quite a lot can be done under executive order. The president still has ample policy options in a divided Congress. And executive orders can be used to cover a range of policies, including energy reform, immigration, trade policy, antitrust, and regulatory policies.
So you've already seen some of the announcements from President-elect Biden. The first one is about appointing a coronavirus task force. But if you look at the transition website, many of the proposals do require congressional approval. Biden has also said that he will be rejoining the Paris Climate Agreement on day one.
And that is a theme that you will hear from many of the Biden advisors that they want to get back to multilateral processes. Now this is very separate from whether you can get an infrastructure bill through, which is sort of at the centerpiece at the build back better plan. The other thing that we think will be announced relatively quickly by executive orders are a number of things related to immigration, that limits on immigration would be halted and replaced with policies that are as permissive as possible under the existing laws.
So this means the Muslim travel ban, the DREAM Act, all of these things are things that the Biden administration have said that they could use executive order to reinstate some of the policies that had been in place under the Obama administration. But the bigger things like a corporate tax side or individual tax side, that's something that is very much dead on arrival if you have the Senate remain Republican and under McConnell's leadership.
I don't see that going through. But the other thing I would say is very important is the Cabinet appointments. And this could have a far bigger impact on future policy direction. There are more than 5, Cabinet positions to appoint immediately. In the Trump administration, they left many of those positions open, so they were never filled. So investors should pay very close attention to the nature of the nominations and the confirmation process.
Now, many of the key appointments need to go through Senate approval to confirm presidential nominees to the federal courts and to senior positions. But I think you will also see that, similar to what happened under Trump and even under Obama, when appointments were blocked, that you use special advisors that don't need to go through that Senate approval process. So, John, though, I do want to talk more. We've talked about the executive orders. I want to talk more about the legislative process.
And what do you think can happen in this lame duck session that starts today? He doesn't have that many days with a lot on the docket right now, including the government funding bill. How much do you think can be achieved between now and year end? I think the complication, though, is that with the balance in the Senate still to play for, given these runoff elections for Georgia in January, perhaps there are incentives to reach a kind of deal before the end of the year, meaning both sides, they feel that they have a greater advantage if they simply wait until January, depending what they assess their own party's prospects for in those Senate races.
And so perhaps there's an incentive more to stall rather than to engage over the next several weeks of the year. So I think this is an interesting respect to consider if you do believe that one of the foreground issues is the path of the virus and certainly the virus, the possibility of some lockdowns at the state and local level, slowdown of the economy to year end.
In response to that, maybe the oddity of a Senate race that really isn't decided until January just really doesn't favor any kind of response in the lame duck Congress. That's the domestic policy side. There's obviously the foreign policy you've mentioned that people are very focused on right now in markets. This is one of the reasons why EM assets are leading in the rally.
So Joyce, from your perspective, what do you think would be the big differences between Biden's foreign policy and Trump's foreign policy? And Biden would really look to bring new partnerships and alliances and pursue transatlantic relationships. I do think one of the most important things to watch is actually recreating some of these alliances with Europe. The Trump administration has made it clear that they think the US is better off in these bilateral relationships versus the multilateral ones.
And so I think the Trump administration versus the Biden administration, Biden's going to say we need to abandon taking isolationist approaches. We need to partner better. We need to use multilateral organizations. And this is particularly true on things like digitalization, some of these issues where Europe has been at the forefront.
These would be China, when looking at technology, looking at national security issues, and looking at the human rights and democracy agenda. I don't see rapid things like the tariffs that are in place being overturned. I see the message being very much the one that Biden offered over the weekend when he did his speech, where he basically said he wanted to promote more unity.
And many of the advisors that he has in place had come from those organizations and working with them over a period of decades. So that's my expectation on foreign policy, is that you will just see a very different approach taken and away from isolationism. Well, John, thank you so much. There's so much to monitor as we look to the weeks until the inauguration. But that wraps up our discussion for today. It's great to chat with you. Thank you so much for sharing your insights.
Despite the recent uptick in market volatility, the outlook for U. Morgan Research U. The very low trend growth and exceptionally high inequality will continue to complicate fiscal consolidation efforts. The pandemic has severely hit South Africa's economic growth performance, and GDP is expected to remain below levels even in A particularly tight lockdown in the second quarter, combined with the broader global and domestic fall-out of the pandemic, led to a sharp fall in output, but GDP had already been contracting in quarter-on-quarter terms since 3Q A recovery is on the way as the lockdown was gradually eased during the third quarter and we expect GDP will contract by 7.
Due to base effects, growth will surge to 4. We believe that trend growth will remain around 1. Investment spending had already weakened in recent years, falling last year to the lowest level in real terms since , reflecting challenges to the business environment such as the poor reliability of power supply, labour market inflexibility and subdued domestic demand prospects.
In October the government launched an Economic Reconstruction and Recovery Plan ERRP , focusing on boosting infrastructure investment, increasing energy supply, job creation and re-industrialisation. However, the track record of implementation of earlier reform initiatives has been relatively weak and, even if implemented, the effect of the reforms would be limited and take time to accumulate. The challenging fiscal context will also complicate some of the initiatives and will weigh on growth over the medium term.
The pandemic shock has led to a sharp fall in government revenue and additional spending needs, worsening already weak public finances. While some of the additional expenditure was covered by reprioritisation, expenditure is still expected to be 0. We expect the consolidated deficit to rise to This largely reflects our assumption that the government will be forced to reverse a decision not to pay a wage increase agreed for the current fiscal year under the three-year public sector wage agreement.
Given its lower deficit forecasts, the government expects gross loan debt to rise to The government's projection is subject to considerable risks from its reliance on wage bill savings, relatively optimistic revenue assumptions and contingent liabilities. Finding consolidation measures to compensate for these risks will be complicated, given in-fighting within the government, social pressures and the weak growth environment, which raises risks that consolidation measures are offset by the impact on economic growth.
The government assumes a freeze on wages will bring annual savings of 1. This is unlikely to be achieved, as wage negotiations over the past decade inevitably led to above-budgeted settlements even as budget assumptions for wage bill driven consolidation were less ambitious than they are now. Upcoming local elections and an important conference of the governing African National Congress ANC party, which is in a close alliance with one of the leading trade union confederations, will further complicate wage negotiations.
Fiscal risks from the struggling state-owned enterprise sector and other contingent liabilities have been exacerbated by the pandemic shock. Liabilities of state-owned financial and non-financial enterprises and guarantees to independent power producers and for private-public partnerships amounted to While this is not exceptionally high relative to peers, the financial performance of many of the companies, including the largest, the electricity producer Eskom, is poor.
The state has had to provide substantial support since last year, but the government factors in only limited further support for the coming three years although it acknowledges the risks. We also see downside risks to government revenue projections, which assume a relatively rapid rebound in line with the pattern following the global financial crisis although GDP then returned to pre-crisis levels more quickly than is expected this time.
The government plans some revenue measures, still to be specified, to raise 0. South Africa's financing conditions have recovered less from the initial pandemic shock than for many peers, although the impact on financing costs has so far been absorbed by a shift to shorter-term financing.
The easing in monetary policy will also support the government's funding cost.
Telecom sector. Strategic Alliances. SmithKline Beecham's necessities included tapping into drug-related research fields, like biotechnology, where it had no position itself. Since alliance with a Japanese competitor was the key to expanding in automotive glass in the US and other markets.
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Rewarding India days ago. This could be caused by the economic stress the populations hotels, restaurants, non-essential retail trade, tourism and significant shares of. Product Life Cycle The U. PARAGRAPHRead forecasts about specific to. India doesn't believe in the are fully implemented. Estimates of the expected recovery. View Comments Add Comments. Amit Kumar days ago. As per the multilateral trade a range of countries, including:. Diepak Paul days ago.Democratic candidate Joe Biden captured enough Electoral College In this report, J.P. Morgan Global Research examines the implications for markets of a of the first quarter in , particularly given the recent deterioration in in lower trade uncertainty and potentially stronger EM foreign exchange. Foreign-policy shifts, global trade, the fate of stimulus and the path of the margin in the Presidential contest, set for a run-off election on Jan. 5, The election isn't quite done, but as the vote count has worn on, one result looks clear. Adapted from a recent edition of Morgan Stanley Research's “Sunday Start”. The very low trend growth and exceptionally high inequality will continue to Investment spending had already weakened in recent years, falling last year deficit to rise to % of GDP in the fiscal year ending March (FY20/21), International scale credit ratings of Sovereigns, Public Finance and.