Strategy : US: Trump Victory Could Be Viewed As The Second ‘Brexit’

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Strategy : US: Trump Victory Could Be Viewed As The Second ‘Brexit’

Trump’s victory could be viewed as the second ‘Brexit’. Global markets are reacting negatively initially due to their belief that Clinton would win. Apart from Trump’s victory, the outcome in the Congress remains unchanged. The Republicans retained the majority in both chambers.

We reiterate our 2016 GDP growth forecast for the US at 1.5%-1.8% while for Malaysia it is at 4.0%. Our global growth target still remains at 3.1%.  For 2017, our global growth projection is at 3.3%.  We have decided to maintain our 2.2%-2.4% GDP forecast for the US economy. On Malaysia’s growth, we are holding on to our 4.5% GDP growth that will be coming from domestic activities and pragmatic policies with exports continuing to complement the economic growth. On the outlook of Malaysian Ringgit (MYR) against the USD, the local currency will continue to trade in tandem with the regional currencies. Our assessment shows the low end of MYR intraday swing on the ‘base’ case is around 4.30 and with the ‘worst’ case at 4.50 against the USD in December. We are maintaining our 2016 and 2017 MYR against the USD full year forecast at 4.08-4.09 and 4.11-4.13 respectively.

We have lowered our rate hike probability by the US Fed to 60% from 75% previously. Looking into 2017, from a view of two rate hikes by the US Fed, each by 25 basis points, we now place only a 60% chance for the Fed to raise the rate twice in 2017. In the case of BNM, we are of the view that the Overnight Policy Rate (OPR) will stay unchanged at 3.00% in 2016. We still maintain a 40% probability for a 25 basis points rate cut in the November 23 MPC meeting. The market reaction overnight tells us that the global markets have not taken the Trump presidency as badly as we had thought. As such, we keep our end-2017 FBM KLCI target at 1,745 points, based on 17.5x 2017 forecast earnings, which is at a 1x multiple premium to its 5-year historical average of 16.5x. The premium is to reflect the ample liquidity in the system globally.

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