The frustrating uncertainty of US economic policy hung like a dark cloud over a recent financial seminar delivered by Duhen in Hong Kong.
His advice: “Investors need to be extra cautious as the world economy fluctuates.”
Nevertheless, Duhen was bullish on the US equity market, as a beneficiary of expected tax cuts and rate increases. Currently the market is pricing in two increases by the Federal Reserve in 2017, so a third one - quite possible, according to Duhen - would further boost the stock market. Banks and other financial institutions are expected to benefit from the increase in rates, as it indirectly improves their profits.
Oil has not exhausted its upward trend yet, he said. Investment cuts in the industry have led Duhen to forecast a moderate rise in prices within the next three years, with the target price of $65 (£52, €61) per barrel by the end of 2018.
Gold, on the other hand, is likely to remain stable at best, so Duhen advises selling on recovery phases.
The general principle underlying the direction of US policy is the desire to create jobs in the country, according to Duhen. But although during his presidential campaign Donald Trump made many promises around infrastructure spending, tax cuts, deregulation and protectionism, it is still not clear which of these promises stand a chance to be implemented, by what means and to what extent.
“He’s changing his mind, we don’t know his intentions,” said Duhen.
Forecasting the economic future with such scant information on policy is a challenge, but certain points can be made, he said.
In particular, the cautious investor should bear in mind that emerging markets may be negatively affected by customs and trade barriers, leading to slower growth.
If the US government is successful in spurring the country’s economic growth, emerging market currencies and key rates will likely face downward pressure.
Duhen was bearish on large emerging markets, specifically China, Brazil, India and Russia, but more optimistic on smaller South East Asian countries.
In Asia, markets are carefully watching China’s efforts to avoid turbulence while its economy is slowing down, capital is flowing out and the currency is depreciating, he explained. Authorities are trying to deflate a property bubble and to reign in public spending, at the same time aiming to keep the economy growing at a stable pace.
Duhen is moderately confident about China's macro-economic management, but current valuations of Chinese equities, on average around 17x, make them unattractive, he said.
Although performance of China equities is up for the trailing three years, Duhen expects more volatility.