In a nutshell, we see President Donald Trump’s America First policies — including universal baseline tariffs on all imports, individual and corporate tax cuts, deregulation and measures to boost US oil and gas production — to be net inflationary but positive for the US economy and corporate profit growth.
We have explained this in a lengthy article some weeks ago, and why we believe that US equities will outperform the rest of the world in the near to medium term (scan the QR code to read the article “Innovation, earnings growth and ruthless capitalism will continue to drive US equities’ relative out performance”, The Edge, Jan 27, 2025). We foresee continued strong global capital inflows in the form of both foreign direct investments (FDIs) and portfolio monies, which will at least underpin sustained strength in the US dollar, if not lift it higher. This would, in turn, enhance investment returns and attractiveness for US dollar-denominated assets, including stocks and bonds.
This is why the global Absolute Returns Portfolio is now overweight the US equity market. Eight of the 10 stocks in the portfolio are US-based companies, selected primarily on two major themes. First, we are bullish on the prospects for early adopters of AI tools, that is, businesses that enhance their products and services by leveraging AI technologies. The resulting relative competitive advantage gains — better products and margins on the back of increased productivity and economies of scale — will strengthen their market positioning and increase market shares, both domestically and globally. For instance, the share price of Palantir Technologies rallied strongly after the company reported a big earnings beat and upbeat outlook guidance. Revenue in 4QFY2024 grew 36% year on year and adjusted earnings per share (EPS) soared 75% to 14 US cents. While the government segment remained its biggest income generator, the commercial segment reported 64% y-o-y and 20% quarter-on-quarter growth in revenue on the back of strong demand for its Artificial Intelligence Platform. In addition to acquiring new customers, existing customers are also spending more.
The other big theme is US banks. We recently added Goldman Sachs and JPMorgan Chase to the portfolio. We believe banking stocks will do well under Trump’s expected push for deregulation as well as individual and corporate tax cuts. Higher-for-longer interest rates will also benefit our two Singaporean bank holdings, DBS Group Holdings and Oversea-Chinese Banking Corp.
See also: Time to cut government spending to reduce tax and boost investments, productivity and wages
Expect better earnings across all core business segments for US banks
Fewer stringent regulatory barriers and hurdles, more business-friendly policies and less government intervention will create a more robust environment for lucrative investment banking activities such as increased dealmaking, mergers and acquisitions (M&A), and new listings.
The new administration is also expected to reduce capital requirements — the minimum amount of capital a lender must hold as mandated by regulatory authorities — for major banks, and relax administrative processes as well as excessive rules and oversights. For instance, Trump has fired the Consumer Financial Protection Bureau director — the CFPB was established in the aftermath of the 2008 Global Financial Crisis with broad powers to regulate financial institutions and protect consumers. The newly installed acting director has ordered employees to cease “all supervision and examination activity” and “all stakeholder engagement” and has cut off new funding. The agency itself faces an existential threat from the Elon Musk-led Department of Government Efficiency (DOGE), whose objective is to eliminate unnecessary federal spending.
See also: High cost of private healthcare: Who is (ir)responsible and how to mitigate?
In addition, the Trump administration is very likely to indefinitely postpone the implementation of Basel 3 Endgame, which seeks to boost capital buffers and place more stringent rules regarding asset risk calculations for banks globally, among other proposals. US Federal Reserve vice-chair for supervision Micheal Barr, who was a key figure in the proposed adjustments for US bank capital requirements, resigned from the position before the end of his term in 2026.
The above measures will reduce compliance and capital costs, give US banks a competitive advantage over global peers, and boost margins, profitability and returns on equity (ROEs).
Meanwhile, individual and corporate tax cuts (fiscal expansion) will stimulate business investments and consumer spending — translating into higher demand for commercial and personal loans. Banks are widely seen as close proxies for economic growth.
Stronger economic and corporate earnings growth relative to the rest of the world as well as a stronger US dollar would make US assets, including stocks and bonds, more attractive to global investors. Case in point: US Treasuries that are widely perceived as “risk-free” are currently offering higher yields than most developed countries (see Table). And while valuations for US equities are high, corporate earnings growth is also expected to be stronger. US dollar strength will further boost returns for global funds. Higher market volumes, in turn, equal more trading, wealth management and investment fund profits for the banks.
We think the Fed is likely to ease monetary policy further, albeit at a slower than previously expected pace. On the other hand, we believe yields for longer-dated Treasuries may not drop by as much, given the expected increase in new issuances needed to service and refinance record-high public debt, coupled with possibly slower demand from major central banks. For instance, the biggest holders of US Treasuries, Japan and China, have been paring their purchases for various reasons — strategic, economic and geopolitical, driven by the willingness of the US to weaponise the US dollar. More returns-sensitive market-driven investors may well demand higher yields to compensate for higher-than-expected inflation and worries over mounting US indebtedness. Trump’s intention to levy tariffs on countries to reduce current trade deficits, if successful, would also mean less of a need to reinvest their US dollar earnings. The combination of lower short-term interest rates while longer-term rates stay relatively higher translates into a steeper yield curve. Banks typically benefit from such an environment — a steeper yield curve expands their net interest margins (profitability). The tenure of their loans is longer than the time duration for deposits.
In short, we can expect better earnings across all core business segments for banks, including investment banking, commercial and retail banking as well as asset and wealth management. Not to mention lower tax expenses if Trump is able to pass into law his proposed corporate tax cut from the current 21% to 15%. Higher profits and lower capital requirements would enable the banks to return more capital to boost shareholder returns, through share buybacks and dividends, and support higher valuations. The improved prospects are underscored by the latest earnings results from both Goldman and JPMorgan, which handily beat market expectations.
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Goldman Sachs
An industry leader in investment banking, Goldman Sachs delivered exceptional 4QFY2024 earnings results, with EPS surging to US$11.95, far exceeding consensus estimates of US$8.21. Revenue climbed 23% y-o-y to US$13.87 billion, driven by broad-based improvements across all major divisions, particularly its global banking and markets (GBM) arm.
The investment banking (such as financial advisory services for M&A and restructuring, and underwriting services for debt-equity offerings) and trading and markets (which include market-making, trading and risk management services in fixed income, currencies, commodities and equities) units recorded a 33% y-o-y revenue increase. Investment banking fees jumped 24% y-o-y to US$2.05 billion, fuelled by strong equity underwriting activity, including IPOs, secondary offerings and private placements. Debt underwriting also performed well, led by higher leveraged finance activities. In trading and markets, fixed income, currency and commodities revenue surged 35% y-o-y to US$2.74 billion while equities revenue soared 32% y-o-y to US$3.45 billion, boosted by strong cash products and equities intermediation. The bank’s equities financing division also reported strong contributions, benefiting from higher prime and portfolio financing revenues.
Meanwhile, revenue for the asset and wealth management arm grew 8% y-o-y to US$4.72 billion, underpinned by higher management and other fees, incentive fees and higher net revenues in private banking and lending. That includes revenue from harvesting, which is the monetisation of long-term private investments such as in private equity, venture capital, real estate and other alternative asset classes.
Goldman’s Common Equity Tier 1 Capital (CET1) ratio (which measures the highest-quality capital relative to assets risks, its capacity to absorb losses) stood at 15% as at December 2024, above its minimum regulatory requirement of 13.7%, which includes a stress capital buffer of 6.2% and a Global Systemically Important Bank (G-SIB) surcharge. The bank has been active in repurchasing its own shares, which totalled some US$2 billion in 4QFY2024. Goldman has a market capitalisation of nearly US$200 billion (at the time of writing). As a G-SIB, Goldman will be a key beneficiary of less stringent capital requirements with deferred Basel 3 Endgame.
JPMorgan Chase
JPMorgan is seen as another big winner of deregulation and less stringent regulatory oversight. It has a reported CET1 ratio of 15.7%, above the minimum regulatory requirement of 12.3% (a higher CET1 indicates lower risks for potential financial distress). Deferring Basel 3 Endgame and possibly even lower current mandatory capital requirements would result in more surplus capital. JPMorgan has been consistently repurchasing its shares, returning excess capital to boost shareholder returns. It authorised a new share repurchase programme of US$30 billion, effective from July 1, 2024, of which almost US$19 billion remained available as at end-2024. The bank also pays dividends, with a yield of 1.8% at the prevailing share price. In fact, it raised quarterly dividends in September 2024, after clearing the 2024 stress test.
JPMorgan is America’s largest bank, with a more diversified business compared with Goldman, providing financial services to a broader spectrum of customers — combining a strong retail banking presence with investment banking, commercial banking services, and asset and wealth management. The bank has also had a stellar year in 2024, ending with an even more impressive final quarter. EPS came in at US$4.81, compared to consensus estimates of US$4.10. This is the 10th consecutive quarter in which JP Morgan has beat market expectations. Net revenue grew 10% y-o-y to US$43.7 billion, driven mainly by higher non-interest revenue that was boosted by asset management fees (strong net inflows and higher performance fees), investment banking fees (equity underwriting fees grew 54%, debt underwriting fees rose 56% and advisory fees surged 41%) and lower net investment securities losses compared to the previous year. Its asset and wealth management arm reported total assets under management of US$4 trillion as at end-2024. JP Morgan also benefited from increased market trading volume and volatility. The stronger non-interest revenue more than offset a slight drop in net interest income, owing to the Fed’s interest rate cuts, lower deposit balances and deposit margin compression. Less positively, higher mortgage rate hurt demand for mortgage loans and refinancing, and growth is likely to remain slow this year. Nevertheless, overall prospects, for all the factors we have explained above, remain upbeat.
The Malaysian Portfolio gained 1.2% for the week ended Feb 12. Kumpulan Kitacon (+6.1%), UOA Development (+3.5%) and Gamuda (+2.5%) were the top gainers for the week; while the two losing stocks were Insas Bhd – Warrants C (-4.3%) and Kim Loong Resources (-1.2%). Total portfolio returns now stand at 198.3% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 12.4% over the same period, by a long, long way.
The Absolute Returns Portfolio outperformed the Malaysian Portfolio, up 4.3% for the week, lifting total returns since inception to another all-time high of 32.6%. Palantir (+15.8%) was the top gainer, its shares lifted by analyst upgrades after reporting an excellent set of earnings results in the prior week. Shares in Grab (+9.6%) also recovered from their recent selldown, which was due to uncertainties regarding the Grab-GoTo deal; and CrowdStrike shares gained 4.2%. The only loser for the week was Berkshire Hathaway (-0.4%).
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
