Trump's Mixed Signals Are Baffling the Markets, $220 Billion Manager SaysBy and
OppenheimerFunds’ Memani says new policies may take more time
Memani says reflation trade will depend on fiscal expansion
The first weeks of Donald Trump’s presidency have forced investors to continually rethink their approach as the Republican sends mixed signals with his appointments and statements, according to Krishna Memani, who oversees more than $220 billion at OppenheimerFunds Inc.
“You can’t blame the market for being confused,” Memani, who is chief investment officer, said Monday in an interview on Bloomberg Television. “After the election, we were expecting lots of things. What is becoming clearer is the fact that whatever we were expecting will take a long time to manifest itself, whether that is Obamacare, or whether that is fiscal stimulus.”
The process for coming up with a replacement for the Affordable Care Act could stretch into 2018, Trump said in an interview with Fox News broadcast Sunday, just weeks after saying he’d put forth plans for a new law as soon as the Senate confirms his pick to run the Department of Health and Human Services. And the nomination of Mick Mulvaney to lead the U.S. Office of Management and Budget could complicate efforts to stimulate the economy, given his focus on narrowing the gap between spending and taxes, Memani said.
The money manager said investors should bet on Trump goals that have a higher likelihood of being implemented. If Trump fails to deliver on his promise to stoke economic growth, that could hurt industrial firms the most, Memani said. Financial companies, on the other hand, are already benefiting from plans to cut regulation, even if some proposals face challenges in Congress, Memani says.
“There’s lots of things they can do on the side without rolling back Dodd-Frank entirely,” Memani said, citing a postponement of the Labor Department’s new fiduciary rule or regulations for asset managers. “I think there are lots of regulatory issues they can deal with.”
The U.S. offers the most attractive trade at the moment to bet on higher inflation, with the promise of government measures to stoke growth, Memani said. Still, investors face risk, according to the money manager. “If we don’t have fiscal expansion, the reflation trade dies out,” he said. “That’s what the bottom line is.”
The chance of disruption is higher beyond the U.S., according to Memani. He noted that several European nations are due for major national elections, which the U.S. won’t face for almost two years.
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“And in China, things could slow down,” he said. “The risk from the markets is going to come from overseas.”