The head of Australia’s Future Fund has sounded a note of caution over the lucrative yet risky “Trump trade”, as US policies boost growth, but ramp up political and regulatory risks.
While the Australian sovereign wealth fund has benefited from US market investments since the election, Raphael Arndt said that Donald Trump’s intensely pro-American policies – spanning tax cuts, tariffs, and supply chain re-engineering – are reshaping the global investment landscape.
“From our point of view, if you look at Trump’s policies and his appointments in the last few days, which show every indication he intends to carry through with those policies, mostly they’re quite pro-growth,” Arndt said at the ASIC Annual Forum.
“He’s saying: ‘We’re going to protect American business to succeed with tax cuts and deregulation, but also we’re going to do it, if necessary, at the expense of other countries – through tariffs, sanctions, and supply chain re-engineering’,” he said, noting that military spending too is expected to flourish.
While Trump’s measures are inflationary, they’re also likely to spur rapid growth in the US economy, but possibly to the detriment of the rest of the world, Arndt said.
“Overall, that’s actually a reasonably positive picture for an investor from a friendly country, which Australia is, into the US. And I think we are ready for that,” he said.
But regardless of the impending Trump presidency, Arndt said the US remains an attractive investment destination in part due to its economic dynamism and resilience against rising interest rates.
“We’ve had the fastest increase in interest rates almost in history and yet the US economy has powered through. Earnings are growing, companies are doing well, unemployment hasn’t really risen, so it is a remarkable situation and it is a very dynamic and powerful economy, which makes it a very attractive place to invest. And that was happening irrespective of who is the president,” he said.
As for the US deficit, Arndt said that while the US budget deficit is “definitely” a risk, it is one that is unlikely to cause immediate trouble.
“Over the next year or two, there are no signs that anyone is concerned about it,” he said, highlighting that the US, as the global reserve currency, is not struggling to fund itself.
“There is just no sign that anyone cares. So that’s why we can have all the stimulatory policy that we can.
“The US is quite unique in that respect, because almost every other government in the world, including Australia’s, is constrained by inflation, floating currency and the appetite of the investors to fund the deficit.”
While keeping an eye on the deficit, the Future Fund chief said that geopolitical tensions and a return of inflation are more pressing factors to watch.
Reflecting on the global landscape and how that will impact the Future Fund as an investor, Arndt said that rising geopolitical tensions and a shift toward deglobalisation could have profound impacts.
“The divisions we’re seeing are fundamental to the global economy and how it’s going to play out,” he said.
“If you look at conflicts around the world today, they’re not macroeconomically important right now. But the increasing deglobalisation of the world, not just in trade but in the laws for investing and exporting, the cyber space, are starting to bring the world apart.”
Arndt said that tariffs are just one step in a broader journey toward a multipolar world, with the US gradually stepping back from its role as a global enforcer.
“We think that means there will be more conflict in the world,” he said.
“The question for us is what does that mean as a long-term investor, and what it means for Australia, that remains to be seen.”
He predicted that an increase in defence spending worldwide is inevitable, which would also be inflationary, but could open new investment opportunities.
Arndt further said that this environment is paving the way for increasingly interventionist governments.
“It’s a less free-market, and more interventionist globally,” he said, underscoring the importance of staying “nimble” as the future unfolds.
