A Singular Viewpoint

A Singular Viewpoint

John Hsu
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Global Overview, January 12th, 2018

For many professional money managers, 2017 was an extraordinary year, especially in contrast to the performance of the previous year.

Whereas the US economy had been struggling for an extended period with very anemic growth and lackluster employment gains, we ended last year with a flourish with GDP growth exceeding 3% and near full employment by most counts. Additionally, President Trump seems to be someone who is very much bent on fulfilling his word. As much as the repeal of Obamacare failed on the first go-around, his tax proposals seem to have scored a hit and carry momentum for the infrastructure and immigration reformation proposals.

The Chinese economy, which by and large marches to its own drummer, is behaving rather differently than forecasted. Previous forecasts usually include some sort of doomsday scenario for Beijing, whether it would be over-leveraging, or shadow banking, or the perennial excessive speculation in real estate. It seems that for the first time in many years, a forecast of the current Chinese economic environment is not accompanied by one or more of these doomsday scenarios. Forecasts for growth seem to have settled around the current 6.5%. The current focus seems to be very much concentrated on President Xi’s vision of the 21st century China that is the ’22 Chinese domination of global economies through “One Belt One Road,” and the greening of China through the reduction of pollution by Chinese industry.

We are positive on Trump’s plans going forward. One likely roadblock on the horizon may be inflationary pressures which are as yet scant on a global basis. However, if the US growth can be sustained at a near-peak level of 3.5-4% and wage pressures finally begin to permeate throughout the system, global central banks’ wishes of a 2% inflation target not only may be easily reached but surpassed. This may materialize late this year or early next year. We will be monitoring global economic activity very closely to see any early signs of a sustained inflation pickup.
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