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Analyst Christopher Wood: Trump's Strategy to Weaken Dollar, Bolster Gold

Analyst Christopher Wood: Trump's Strategy to Weaken Dollar, Bolster Gold


By    |   Monday, 26 December 2016 08:16 PM

Christopher Wood, strategist for CLSA Asia-Pacific Markets, has turned bullish on China amid cautious optimism as Donald Trump enters the White House.

Overall, he thinks emerging market stocks will outperform developed markets going forward.

Wood also predicted to Barron’s that Trump’s “basic tax reform will create huge incentives for Corporate America to move production onshore. That is a bad thing for the guys in the supply chain. It is a bad thing for Apple [AAPL] and for Asia,” he said.

“If Trump’s policies work—which is a big if—they will be inflationary, meaning a weaker dollar, stronger gold,” he said.

“If the Trump story really follows through, it’s a better story for small-cap stocks in America. If the dollar remains strong, it will be a negative for Asia and emerging markets. But in my view, this dollar strength won’t persist in all of 2017. It may peak when Donald Trump walks into the White House,” he said.

Meanwhile, Wood has turned positive on China after the nation’s producer-price inflation turned positive and investment in the manufacturing sector looks like it is recovering.

“The Chinese are now targeting a trade-weighted basket, not the dollar peg. If the dollar keeps strong, the renminbi will go weaker. They don’t want the currency to collapse. China will wait to see what happens [with the Trump administration]," he predicted.

"Taking a call from the Taiwan president was a negative signal by the president-elect; naming Iowa Gov. Terry Branstad to be his nominee for ambassador to China was positive. There are some sophisticated guys in the incoming administration—Wilbur Ross, the Commerce secretary who is a billionaire investor; [Rex Tillerson], the secretary of state, who currently runs Exxon Mobil—who understand the world and I’m hoping someone will explain to him that China is the one country that for the last 10 years has not been trashing its currency,” he said.

Elsewhere, Wood is positive on India despite the Modi government’s decision to replace existing 500-rupee and 1,000-rupee notes with new notes.

“It is my long-term favorite market in Asia. I’m much more overweight in India than China. This was an amazingly ballsy move. Normally, any currency reform happens in a crisis, and there was no crisis. It’s definitely going to hit growth in the next three to six months, and the rural economy more because the urban economy uses credit cards," he said.

"Prime Minister Modi is intent on implementing his reform agenda. This is aimed at fat cats who have accumulated cash hoards to remain outside the taxed economy. The slowdown will last three to six months. Deposit growth will significantly increase, giving banks more room to pass on rate cuts to borrowers,” he said.

Wood is also positive on the Philippines, despite its volatile new president, Rodrigo Duterte.

“I am still overweight, but now have a less positive view. I had a massive overweight in the Philippines for several years, which I had to reduce because of the uncertainty created by the new president. He has already destabilized the currency a bit. The worry is that he destabilizes business confidence," he said.

He isn’t as optimistic on Europe.

“The euro zone will break up in the next two years. During the Greek crisis, I thought they would stick together. But [German Chancellor Angela] Merkel’s political support provided cover for [European Central Bank President Mario] Draghi to buy U.S. and government bonds,” he said.

“So European equities are cheap and you can make great money trading around them, but you have to navigate these curves and minefields.”


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The highly regarded analyst thinks emerging market stocks will outperform developed markets.
christopher wood, trump, china, asia
Monday, 26 December 2016 08:16 PM
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