Trump turns into 'goddess' Liu Yang

Business | Ivan Tong 16 Apr 2019

We have the "goddess of stocks" Liu Yang in Hong Kong and there is the "god of stocks" Donald Trump in the United States.

The difference between them is that Trump wields immense power and influence while Liu, the chief investment officer at Atlantis Investment Management, specializes in asset management and is perpetually bullish about Tencent (0700).

There is a yawning gap between the impacts that they generate: you can dismiss Liu's opinions with a laugh but cannot ignore Trump's tirades.

The US President attacked Jerome Powell, the chair of US Federal Reserve again, on Twitter while spending a Sunday at the Trump National Golf Club in Sterling, Virginia, saying if the Fed "had done its job properly," or quantitative easing, the Dow Jones Industrial Average would have been up by an additional 5,000 to 10,000 points with GDP rising more than 4 percent instead of 3 percent.

In terms of a 10,000-point increase, the Dow would climb an additional 38 percent! And US stocks have risen 36 percent since Trump took office.

In other words, if you believe Trump - and if he has influence on central bank policy - we are only halfway through the Trump-inspired bull market.

Investors are divided in their opinion on whether Liu is a goddess of stocks or just a "bright lamp," an analyst whose expectations always prove the opposite.

But it depends on when you've heard Liu speak.

For example, last April, Liu advised investors to buy Tencent, saying its stock would top HK$1,000 by 2020 and HK$405 was a support level, after South Africa's Naspers reduced its stake in the internet giant for the first time in March 2018.

Investors who believed her would have suffered a big loss as Tencent's price continued to fall to around HK$250 last October before rebounding to near HK$400 yesterday.

However, this February, Liu told Bloomberg TV that Chinese A-shares would outperform and Tencent would bottom out.

If investors had put their faith Liu this time round and bought the index heavyweight's shares at around HK$300, they would have reaped a windfall.

The title of this column - Trump turns into 'goddess' Liu Yang - does not mean I want to praise or criticize them, especially Trump, who continues to push Powell to hold still on interest rate hikes and even reduce rates as early as possible, given there is only very tame inflation in the world's biggest economy.

Of course, it is Trump and his economic brain trust's opinion, and it is easy to see these efforts are aimed at winning another four-year term as president.

The stock market rally and a potential Sino-US trade deal will be bragging rights on his political record. Trump, of course, knows that there is a bigger chance of winning a second term amid a recovering economy, going by US presidential elections history.

However, the equity market is different from the real economy - and we have so much historical evidence to prove that the stock market can continue to rise even while the economy is slowing down.

It's ironic that the gap between the rich and the poor has grown wider than the period before the 2008 financial crisis with more needy people than rich men, and a lot of these in need voted for Trump in the 2017 election.

But unless the US economy continues to grow healthily with a low unemployment rate, a rally in US stocks is of little interest to these voters. So, surging stock indices cannot be a hard indicator of Trump's re-election.

To be fair, the Fed should take part of the blame for the slump in US stocks at the end of last year, when it said it expected to raise interest rates more than once in 2019.

The fact is that America, with an increasing debt burden, is not really in a position to raise rates rapidly. Raising rates will add interest costs and that is why US stocks recovered immediately after the Fed stopped raising rates.

For now, the United States is scared to increase rates but while China and Europe have conducted more monetary policy easing to deal with the slowdown, other governments around the world continue to kick the can down the road.

Ivan Tong is Editor in Chief of The Standard

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