By Jim Walker – Wealthy Nations (Hong Kong) –
The headlines are still full of Donald Trump and what he means for markets and the United States. We address these issues in this month’s Wealthy Nations. But it is always worth remembering that politicians, no matter how newsworthy, can only make a difference at the margin.
And sometimes they don’t make much difference at all when it comes to policies and trends in other countries. For example, the direction of the renminbi against the US dollar will not be determined by Mr. Trump. It will be determined by fundamentals in China and between China and the US.
While the general view is that the renminbi will continue to weaken (that is as much the consensus as was the case two years ago when everyone thought it would continue to strengthen), we are of a different view. We are not dollar bulls and, if we are not dollar bulls, we are not renminbi bears.
The external balance on trade and the interest rate differential favours a stronger renminbi, not a weaker one. Have markets entirely forgotten fundamentals? It feels like it at the moment – in fact, the negativity towards the renminbi is like a Looney Tunes cartoon.
One of Asia’s best performing markets in 2015 was Indonesia but economic fundamentals have changed there as well. We see the country as having a critical constraint on private investment growth at the moment. We are underweight Indonesian equities in our regional portfolio.