Global economic expansion will continue at a modest pace as political populism evolves to benefit the US and create challenges for Europe, Northern Trust Asset Management says.

Northern Trust’s US-based chief investment strategist Jim McDonald will update the market on the firm’s five-year outlook next month. He says “stuckflation” – entrenched low interest rates and inflation – will continue for the next five years. However, he says, the “global positioning” away from multilateral systems such as the International Monetary Fund and NATO is evolving.

McDonald says populist politics in the US, Europe and elsewhere has produced “stronger individual leaders”, which has been positive for the world’s largest economy.

“Right now, the US will come out of this in good shape,” McDonald says, ahead of his appearance at the AIST Superannuation Investors Conference in Cairns in September.

“The one area where there’s been a little bit of evolution [from Northern Trust’s five-year outlook last year] is that it has become more apparent that Europe has somewhat wasted its recovery period without reform.

“It makes it more difficult [for Europe] to deal with in the next downturn.” Meanwhile, the Trump administration had been pro-growth, deregulation and tax reform, which McDonald says is positive for the US economy.

“One of the key themes that we’ve been talking to the investors about is there has been a significant focus on the US president – an over-focus,” McDonald says. “The negatives, and there has been a lot more smoke than fire, are NAFTA and the US pulling out of the TPP [Trans-Pacific Partnership].

“That’s not a great thing for the US, unfortunately, over the long term. That was an example where the retreat from globalism was negative but it’s still somewhat early.”

Meanwhile, trade tariff talk between China and the US has produced some casualties but it’s better for investors to “watch what they do, not what they tweet”, McDonald says.

Recently, US company Qualcomm walked away from a $US44 billion ($60 billion) deal to buy Dutch semiconductor maker NXP after failing to secure Chinese regulatory approval. McDonald acknowledges the deal as a high-profile victim of the US/China trade spat. He says the interdependence of the China and US economies is great and that mutual destruction is assured if the trade dispute gathers momentum but he deems this unlikely.

Looking ahead, McDonald says any global economic downturn that occurs will be “relatively shallow”.

“Banking systems are significantly more robust,” he says. “Right now, we don’t see the ingredients for a recession but there is mild growth myopia.

“As far as a correction in the markets, you tend to have a bear market every three to four years. This is just part of the overall investment cycle. You will definitely have a correction but we’re not expecting one in the next 12 months. We are tactically pro-risk in the US and emerging markets.”

Emerging market growth is strong and will be part of Northern Trust’s investment focus because those markets have been “punished by the rising US dollar” he says.

Jim McDonald will provide a five-year market outlook and his view on tactical opportunities at the Australian Institute of Superannuation Trustees Super Investment Conference, to be held in Cairns, September 5-7.

Leave a comment