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Robeco Advise Investors Post US Election Result

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Donald Trump Sr. at #FITN in Nashua, NH by Michael Vadon via flickr

Robeco suggest that investors should adopt a defensive stance towards stocks following the managers.

“Going in to the US elections, we considered US equities to be fully priced,” says Mark Glazener, Head of the Global Equity team and fund manager of the Robeco NV fund. “In terms of growth we expected a muddling-through scenario, as indicated by business confidence indicators. The ISM manufacturing PMI in the US had dipped below 50 in August and had since recovered, without showing a clear direction.”

“The Senate that seemed to be a comfortable win for the Democrats now remains Republican. The House, as expected, stays Republican as well, and the Presidency against all odds goes to Donald Trump. This is a landslide victory for Trump and the Republicans.

“As expected, equities around the world are under pressure. Equities and the economy are based on confidence and confidence will be fragile.”

“Investor concerns focus on Trump’s anti-trade and immigration policies. If he continues his rhetoric on protectionist trade policy, this might be the trigger for a long awaited recession in the US economy. Trump’s policies are partly unknown and his team even more.”

Winning short-term position

“A defensive stance will be the winning position for the short term. A weakening US dollar will dampen the fall of US equities. The health care sector will show a sigh of relief as Clinton’s drug pricing plans will now be off the table. Trump has promised a big infrastructure spend, so building-related names will do well. The big question is what will financials do? The first indications are that the 10-year bond yield in the US is declining, as a symbol of a flight to safety. This will not play in to the cards of banks.”

“The initial reaction will therefore be negative. Whether this will continue all depends on the stance of President-elect Donald Trump and the choice and stability of his team. If the new policy will circumvent a protectionist trade stance and aims for market-friendly practices, significant policy stimulus, tax reforms and fiscal stimulus, the final outcome will not be that bad. A first signal of this will be the reparation of relations with the Republican Party, which now controls policy with a majority in the House and the Senate.”

Emerging markets ‘stunned’

“A Trump victory does not bode well for emerging markets equities, and we expect a first negative market reaction and overall shorter term volatility, as markets will be stunned by the results of the US elections,” says Fabiana Fedeli, Senior Portfolio Manager for Emerging Markets Equities.

“In the short term we could see further US dollar weakness. However, in the longer term, if Trump sparks a risk-off scenario in equities, assets could flow back to the US, and this perversely would have a positive impact on the US dollar versus many other currencies, including those of emerging markets.”

“Across all emerging markets we expect Mexico to show the most negative reaction, and this should affect first and foremost the country’s very liquid currency market, triggering a sharp decline in the peso, and secondly the equity market. After the Mexican peso, the Brazilian real is the most exposed currency given the country’s dependency on foreign capital flows,” says Fedeli.

“Eventually, we expect the overall volatility across most emerging equity markets to subside once the market focuses on fundamentals. That said, we are likely to see occasional volatility spikes and market jitters ahead, triggered by any instances of Trump’s incendiary rhetoric on foreign politics or any steps of his administration in favour of protectionist measures.”

US not-so dominant

Fedeli says the reason for expecting a normalisation across most emerging markets is that, notwithstanding the new administration’s protectionist stance – Trump is against the Trans-Pacific Partnership and wants to increase tariffs for Chinese goods – the US is not as dominant as a trading or investment partner as one might think. First, it accounts for 12.8% of emerging markets exports, down from 14.9% ten years ago. Second, across most emerging markets the role of US Foreign Direct Investments has diminished considerably since before the Global Financial Crisis.

“The exception to this is Mexico, which is far more dependent on the US as a trading partner, a source of investment flows, as well as a destination for its migrant workers,” says Fedeli. “If a Trump administration stays true to its campaign statements of renegotiating or withdrawing from the NAFTA agreement and deporting all undocumented migrants living in the US, the Mexican economy could be significantly damaged.”

“Given that exports to the US account for about 28% of Mexican GDP, US Foreign Direct Investments for 1.4% and remittances from the US account for approximately 2.1% – although not all the remittances are from undocumented workers – markets would perceive a Trump win as a disaster for the Latin American country, and the impact on its currency and equity market would last longer. In addition to NAFTA, Trump indicated that he wants to revise other trade agreements. In Latin America, other exposed countries are Peru and Colombia as they both signed Free-Trade Agreements with the US.”

NAFTA withdrawal: a game changer

“While a withdrawal from NAFTA and other agreements would be a game changer for Mexico and upset Andean countries, for other emerging markets the focus of US companies on their bottom line could to some extent offset any protectionist measures a Trump government would implement. This is due to an improvement in labour cost competitiveness with the US,” Fedeli says.

“Trump has promised a 38% increase in US minimum wages at a federal level. While only a small number of workers are subject to federal minimum wages, there would likely be a corresponding increase in minimum wages in some states. In addition, in Trump’s case the increase would be paired with a loss of cheap jobs should the undocumented migrant workforce, which is estimated at 7% of the total US workforce, be deported. An upward impact on wage growth would also occur if overall immigrants making up 17% of total US workforce were to be reduced by more cumbersome visa procedures. This could push some US exporters to move production outside of the country.”

Foreign policy: a worry

“All that said, while the direct economic impact of a Trump presidency on most emerging markets (except Mexico) would be relatively contained, a key concern is Trump’s potentially damaging impact on US foreign policy and, as a consequence, on world geopolitics. We live in a world of delicate political balances, such as the UK Brexit, the Syrian conflict and Russia-Western world hostility, the rise of a more authoritarian and nationalistic Presidential power in China, the territorial disputes in the South and East China Seas.”

“The US still fills an important role within many of these delicate balances and Trump’s commentary on foreign policies would bring us in unchartered waters. Importantly, Trump’s tendency to ‘shoot from the hip’ when it comes to foreign policy commentary, would make him the classic dancing elephant in the crystal shop.”

But there may be one potential silver lining to this, she says. “US Presidents don’t have a particularly good record of keeping their campaign promises, and therefore many of Trump’s explosive campaign pledges might end up being difficult to implement in practice. However, with a Republican majority both in the Senate and in the House of Representatives, the silver of the lining might prove to be not as shiny.”

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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