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Inauguration Day | Emerging Markets | The Third Chimpanzee
Well, Happy 2017!
Like most of you, I suspect tomorrow's
inauguration of Donald Trump
as the next president of the United States will be the beginning of one of the most interesting periods in U.S., and possibly global, history.
So what does a Trump presidency mean for the markets and your portfolios?
As mentioned in a previous newsletter, we can likely expect the unexpected. Unfortunately, the unexpected is something that perturbs the markets. That being said, the fairly placid responses to Brexit and the presidential election results reinforce how hard it is to predict what will happen. In other words, I'm not sure anyone really knows!
Politics aside, I'm somewhat concerned about the historically high valuations in the U.S. and a few other developed markets----- mind you, I'm not saying a fall is imminent. As we've seen in the Canadian housing market (also worrisome), valuations can remain irrational when provided with the right (or wrong) environment. As long-time readers of this newsletter know, we are responding by taking some profits off the table and keeping a closer eye on the expensive markets.
In addition to rebalancing portfolios, I'm changing our models to adjust for some anticipated trends. To protect against a potential interest hike, I'll be making a small change to our bonds positions. We're already well protected, but given the Trump presidency, another tweak is prudent. The second, and larger, adjustment has been five years in the making: We are increasing our emerging markets (EM) exposure.
EM valuations have been historically cheap, particularly when compared to the U.S. and some other developed markets (DM). Secondly, I believe EM economies have a good chance of outgrowing DMs over the next decade, at least. Most EMs have much younger populations (China excepted) and a much lower GDP/capita. Besides the competitive advantage this gives them over DMs, it's likely they will grow faster on a per-person basis since they're starting from a lower income base. This combination of lower valuations and better growth prospects is extremely compelling to me.
In the review queue
The Gene: An Intimate History
by
Siddhartha Mukherjee:
Although long and detailed, Siddhartha Mukherjee has done a wonderful job of simplifying a complicated subject like genetics, causing an average reader to be rapt with amazement and wonder. The book covers everything from Mendel's pea plants and Darwin's finches to the despicable Nazi experiments to the latest findings and future ethical challenges. The book's unexpected bonus is how Mukherjee intertwines his family's history of genetic illness. If you'd like a sneak peek before taking the plunge, watch Mukherjees's
interview with Charlie Rose
, or
Intelligence Squared
.
The Third Chimpanzee: The Evolution & Future of the Human Animal
by Jared Diamond:
Jared Diamond is one of the most influential anthropological thinkers of the last few decades. Most known for his 1997 classic
Guns, Germs, and Steel
, The Third Chimpanzee tells the story of the evolution of Homo sapiens----- the third chimpanzee. Ranging from our contact with Neanderthals to why we knowingly engage in risky behaviour, this book provides a number of thoughts on why humans do what we do. Although I'm glad I read this book, Diamond's writing style isn't exactly page-turning (it was my third attempt at reading it) and there are more recent books you could choose.
The Tail End
by Tim Urban:
A great perspective on the shortness of life and a reminder to make sure you are spending yours doing things that are important to you.
The Emerging Markets Hat Trick
by Rob Arnott and Brandon Kunz:
Good article if you'd like to learn more about why emerging markets might be a good investment at this time.
Going viral: The Inauguration Edition
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Matthew Lekushoff, CIMA
Financial Advisor
Raymond James Ltd.
T: 416-777-6368 | F: 416-777-7020 www.Matthewlekushoff.ca   
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