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Disrupters rule the world; Reporting season underway

Peter Warnes  |  03 Feb 2017Text size  Decrease  Increase  |  

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Trump's attempt to interrupt the powerful and widening tide of diversity around the globe will make the US weaker, not stronger, in the long term, Morningstar's Peter Warnes says.


With the stroke of the pen on an executive order, President Donald J. Trump fired the first shot in an isolationist war--a war designed to protect US borders.

The order severely restricts immigration from seven majority-Muslim countries, suspends all refugee admission for 120 days and bars all Syrian refugees indefinitely.

Border security was one of Trump's main campaign promises. Initially airports were thrown into chaos, until there was clarification the order applied only to non-US citizens.

The initial reaction in global equities markets was negative, quelling the euphoria of the Dow breaking through 20,000 last week. Currency and bond markets seemed to take little notice, although the US$ has subsequently weakened modestly.

Polls taken prior to the media outbursts show 57 per cent of Americans supported the temporary bans and 33 per cent opposed them. It shows the strong polarisation of opinion in the US with little middle ground. To my mind, this elevates the potential risk.

The world has and will continue to grow and thrive because of diversity, and increasing globalisation of the economy and trade. President Trump's attempt to interrupt the powerful and widening tide of diversity is destined to fail.

It would make the US weaker, not stronger, in the long term and would reduce the standard of living of consumers, both in the US and globally.

The rhetoric accusing almost every trading partner of currency manipulation, particularly those where the US has a trade deficit, is also counter-productive.

Trump's first week in office made Pac-Man look statuesque. The fountain pen worked overtime, signing 18 executive orders. This is what the electorate wanted--perceived or actual pro-growth, pro-job, border security action.

This was Trump's election platform and he wants to be seen to be delivering. But heightened delivery can have consequences, just like friendly fire.

Investors are currently poring over 4Q16 profit results and monitoring 2017 guidance. Given the elevated market, the margin of safety is narrow.

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Peter Warnes is Morningstar's head of equities research. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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