The United States will drive global growth this year, though the so-called Trump effect is as likely to heighten volatility as it is to boost confidence given the new US President’s unpredictability.
That is the view of Jonathan Bayes, and as he is the Chief Investment Officer of ASX-listed Prime Financial Group and a key strategist in its wealth creation policies, he will guide over $1 billion of investor funds in 2017.
The US economy is in its best shape for a decade, Bayes believes, with consumer and business confidence at 10-year highs, high employment, wages improving, record stock markets and a generally strong dollar.
“Although people claim the Trump election has driven confidence, the reality is that it’s the cream on the top of an already improving global economy.
At the end of the day, growth cures everything, and US growth is in very good shape,” Bayes says. Australian waters may not be so smooth, he fears.
Household debt is at historically high levels while wage growth is at record lows. Australia has had an Indian summer in foreign trade, and commodities have done better than anyone could have expected, but China’s infrastructure building will slow, and that will dampen demand and prices. Bayes regrets that short-term politics in Australia have impeded a visionary view of infrastructure spending.
“There’s a lot of government debt globally, but Australia doesn’t have much at all. If we’d gone down that path I would have been much more optimistic because the government can afford to spend it, and it will repay them down the track in productivity gains and tax revenue.
Effectively, that is what Trump has said he will do.” Bayes’ role at Prime Financial is a sharp change in direction for the former hedge fund portfolio manager. Once accustomed to buying and selling in a day, he now takes the long view, acutely aware that all his clients have different priorities. “Most of our clients are heading towards their retirement, or at least planning for it.
You want to generate good returns, but don’t want to lose money that people have spent a long time making. Our mantra is building wealth and protecting assets, we don’t do anything remotely speculative,” he says.
JONATHAN BAYES, PRIME FINANCIAL CHIEF INVESTMENT OFFICER
But it’s still about making judgments, then backing them. As chief investment officer, one of his duties is to calm clients if an investment hasn’t met their expectations. “I’ve learnt that people have short memories, and you are only as good as your last trade. People are critical and rightly so. It is their money.
But that’s a good thing because it means you are constantly self-evaluating,” says the self-confessed control freak. He tells clients there is no point in having lazy money – it should be working every day. There are always good companies, but they are not always good investments.
Bayes’ task is to pick the point in the business cycle to buy – and sell. The psychology of the market fascinates him. For example, Australians have a huge confidence in the big four banks. “In March 2015 when Commonwealth Bank was at close to $100, trying to suggest people sell was met with remarks like ‘I’m taking this one to the grave’. Fast-forward to March 2016 and it was at $70 and people are happy to sell, even though it’s $30 lower.
People feel better doing something, even if it is wrong, if others are doing it.” As billionaire Warren Buffet said, it’s all about fear and greed. The sharemarket mirrors life, and how people react depends on personality, Bayes says. “I’m a confident and opinionated person, so when I’ve got a position I like to commit to it.
The key is, however, not to be too stubborn. Mark Twain was right, it’s not what you don’t know that gets you into trouble; it’s what you know for certain that isn’t so.”
Jonathan Bayes is an Authorised Representative of Primestock Securities Ltd (AFSL 239180), a member of Prime Financial Group Ltd.