Cut government spending and lower taxes for the people and businesses, deregulation, free market, anti-immigration, deglobalisation and less progressive inclusion. These are the policies that an increasing number of countries are embracing to stimulate economic growth.
And they are contrary to the preference of the progressive left (which was the more dominant force politically for more than two decades, until recent years) for larger, more interventionist governments and higher and progressive taxes to fund myriad social programmes in creating strong welfare states (redistribution of wealth to aid the lower-income groups). As we wrote previously, the economic pendulum is swinging to the right across the globe, most notably in Europe and Latin America. Last week, the centre-right coalition in Germany was the latest right-leaning party to emerge victorious in national elections while the far-right party, Alternative for Germany, came in second, gaining more votes than the incumbent centre-left party of Chancellor Olaf Scholz.
One of the toughest policies to implement for any government is spending cuts. Too often, it is easier said than done. Indeed, governments tend to do the opposite — to spend more, especially on transfer payments (cash handouts) because they are popular and win votes. Germany’s next chancellor, Friedrich Merz, has promised to crack down on immigration, cut taxes for both individuals and businesses to rejuvenate growth and competitiveness, as well as reduce regulations, simplifying administrative processes to foster a more business-friendly environment. But execution plans, particularly around reducing subsidies and social services, have been vague and he has acknowledged that the German public has low tolerance for disruptions. This is a stark contrast to how swiftly US President Donald Trump is moving, tasking and largely standing by the Department of Government Efficiency (DOGE) thus far.
DOGE has been very aggressive in its cost-cutting efforts. Its stated objective is to slash wastage, fraud and abuses, and streamline government operations, to raise efficiency and significantly reduce the scope and size of the government and spending. The cost savings are intended to fund broader tax cuts, reduce public debts and possibly even be returned as “dividends” to Americans.
For instance, all federal agencies have been asked to draw up plans for “a significant reduction” in full-time positions, review contracting policies and procedures, terminate or modify existing contracts and justify spending on workers’ credit cards. Going forward, the guidance is for only one new hire to replace every four employees who leave. At the point of writing, some 85,000 federal employees had been fired, the majority of whom accepted buyout offers, while another 200,000 probationary workers are likely to soon face the axe. DOGE has also sent a “What did you do last week?” email to all 2.3 million federal employees asking them to justify their jobs in five bullet points. Agencies deemed redundant, responsible for excessive regulations and bureaucracy, wasteful programmes and those not aligned with Trump’s priorities, including the United States Agency for International Development (USAID) and Consumer Financial Protection Bureau (CFPB), might be facing existential threats. The Department of Education could be dismantled and responsibilities returned to the states.
In short, Trump is making good on his campaign promises and proving that they were not mere rhetoric. It helps that Elon Musk is not an elected official, and the richest man in the world does not need to be popular. And Trump himself is unlikely to be eligible for another term.
See also: High cost of private healthcare: Who is (ir)responsible and how to mitigate?
Musk is confident that he can find US$1 trillion ($1.33 trillion) in savings — which is about 15% of the total government budget of US$6.75 trillion for fiscal year 2024, albeit half the initial target of US$2 trillion. So far, DOGE claims to have made US$65 billion in estimated savings, though some have questioned the veracity of this figure. And several of DOGE’s actions have been met with sharp criticism and court challenges. But the point is, the cuts are happening.
Despite the surrounding controversies, there remains broad public support for a smaller and leaner government, lower spending and lower taxes. Trump has claimed that his ultimate goal is to balance the budget by 2027. The last time the budget was in surplus was way back in 2001, during the Clinton administration.
The Department of Defense (DOD) has one of the largest allocations in the budget, around US$850 billion. New Defense Secretary Pete Hegseth has instructed his agency to cut 8% of spending annually over the next f ive years, which will include layoffs. This is the main reason that we sold our shares in Palantir Technologies, besides the fact that we made a handsome 76% profit on our investment in little over three months.
See also: Who speaks for the ‘squeezed and bruised’ middle class in Malaysia?
We like the company’s data analysis software platform and solutions, and how it leverages artificial intelligence (AI) to transform existing processes, enhance effectiveness, and boost operational efficiency and productivity. Palantir is heavily reliant on government contracts, however, which accounted for roughly 55% of total revenue last year, underpinned by its relationship with DOD. The company may or may not be negatively affected by the budget cuts — for instance, its solutions would drive efficiency, which aligns with Trump’s objectives and could even gain from any funding reallocations. But its elevated valuation amid the heightened uncertainties means there is still a big risk. Even after the steep selloff, the stock is trading at a price-earnings multiple of nearly 160 times estimated earnings.
Indeed, US stocks as a whole have seen increased volatility, owing primarily to Trump’s flurry of executive orders, particularly on tariffs, which are driving worries over higher-for-longer inflation and interest rates. The resulting uncertainties are putting a damper on consumer confidence, which fell sharply in February and could weigh on consumption and economic growth — even though the data so far continues to point to a resilient economy. Risks are further elevated because of prevailing high stock valuations. That leaves stock prices more vulnerable to negative news. Case in point: the sharp 30% drop in Palantir’s share price from a record high of US$125.41 (in mid-February). Having said that, we remain upbeat on the US economy and US equities.
Yes, we do expect Trump to keep his promise for broad tariffs to address the current trade imbalance. And, yes, tariffs will raise prices of goods and services for US consumers, keeping inflation higher for longer. But we believe tariffs will also boost domestic investments, jobs and wages. Businesses will relocate their manufacturing to the US (the source of demand) to avoid tariffs. There are indications that this may already be starting to happen.
Importantly, revenue from tariffs, along with deep spending cuts, will allow Trump to push through the core of his economic agenda — tax cuts, including the extension of individual tax cuts from 2017 and permanent corporate tax reduction to 15%. Lowering corporate tax to the global minimum rate, paired with deregulations, will further attract capital and investments, from both domestic and foreign companies and investors. The resulting stronger growth will partly pay for the tax cuts.
At end-February, Republican lawmakers advanced their budget blueprint, which includes US$4.5 trillion in tax cuts and US$2 trillion in spending cuts over a decade — the framework for Trump’s tax and spending cuts and border control plans — through the House of Representatives. It is certainly not going to be easy. A lot more negotiations will be required between the House, Senate and the White House before a consensus for the final budget is reached. But the bottom line for us remains unchanged — we are upbeat that Trump will be able to deliver on his pro-business agenda. US economic growth and the US dollar will remain strong relative to the rest of the world.
A stronger greenback will raise consumer purchasing power. Coupled with lower taxes (higher disposable incomes), consumers will be able to negate the impact of higher sticker prices due to tariffs. We also believe that rapid adoption of AI technologies and a rejuvenation in infrastructure investments will drive productivity gains, which will help offset US dollar strength and maintain US competitiveness in the global market. We will elaborate further on these in future articles, and how we are positioning the Absolute Returns Portfolio.
The Malaysian Portfolio fell 2.2% for the week ended March 5. United Plantations (+0.7%) was the only gainer while the three biggest losers were Harbour-Link Group (-5.5%), Gamuda (-4.9%) and IOI Properties Group (-4.5%). Last week’s losses pared total portfolio returns to 188.6% since inception. Nevertheless, this portfolio continues to outperform the benchmark FBM KLCI, which is down 14.5% over the same period, by a long, long way.
For more stories about where money flows, click here for Capital Section
The Absolute Returns Portfolio too fell 2.2% last week in line with the broader market weakness, reducing total returns since inception to 25.1%. The top three gainers were Berkshire Hathaway (+0.9%), Tencent Holdings (+0.5%) and CRH (+0.4%). Talen Energy (-9.1%) was the biggest loser last week, followed by CrowdStrike (-7.4%) and Goldman Sachs (-4%). Although the cybersecurity firm beat market expectations in its results for 4QFY2025 ended Jan 31, its projected earnings for the current quarter and FY2026 were much weaker than anticipated. CrowdStrike flagged continued fallout from its botched software update last year as well as caution in enterprise spending amid prevailing uncertainties.
We used part of our proceeds from the sale of Palantir to acquire 700 shares in Tencent. The rationale is similar to that of our investments in US-based platform and software companies — the end-users of technology and artificial intelligence (AI) in their core products will benefit from productivity gains and enhanced market competitiveness. Tencent is also an important investor in tech startups, by providing funding, cloud services and integration into its platforms. Interests in Chinese tech companies have surged since the release of DeepSeek’s reasoning model. Its open-source strategy is a major catalyst for investments, adoption and expansion of the AI ecosystem. Tencent has integrated DeepSeek-RI into its Hunyuan foundational model, to power its suite of products and services. For instance, its latest AI chatbot, the Yuanbao (which now operates at much lower usage costs than previous models) overtook DeepSeek to become the most downloaded iPhone app in China last week.
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.
