Abrdn Investments, the UK-based global investment and asset manager, has nearly halved its forecast for Federal Reserve rate cuts next year based on signals of rising inflation under US president-elect Donald Trump.
Dongyue Zhang, head of investment specialists for Asia-Pacific at Abrdn, said Trump's "America First" policy will return when he takes office early next year, pushing US inflation to accelerate from the Fed's 2% target. As a result, the likelihood of interest rate cuts is lower, he said.
Policies that will increase inflation include raising import tariffs on China by 60% and other countries by 10%, which will lift domestic goods prices, while deporting illegal immigrants will also increase the cost of living, according to the brokerage.
Both policies will cause higher inflation, possibly reaching 3% from the current 2.4%, because the service sector relies on labour, which will face higher costs, said Mr Zhang.
"Trump's policies will result in the Fed cutting interest rates more slowly. From December 2024 to the end of 2025, rate cuts are expected to total 1.25 percentage points, an average of 0.25 points per quarter. This is lower than the original forecast of almost two percentage points of cuts," he said.
Abrdn anticipates the US economy will expand 2.7% this year and 2% next.
"While it is uncertain when these two policies will be implemented, the Trump government will have two months to prepare policies to present to Congress. The urgent issue for the administration is expected to be reducing the cost of living," said Mr Zhang.
As for the impact on China, Abrdn expects a muted effect because China already reduced exports to the US, with some manufacturing relocation to Asian nations to avoid the trade war.
The mainland continues to implement stimulus measures, focusing on domestic consumption, noted the brokerage.
China's GDP growth is estimated at 6-8% in 2-3 years, up from 4.8% this year and 4.6% in 2025, according to Abrdn.
Mr Zhang said the brokerage has a positive view of developed stock markets such as the US, with Wall Street tech equities expected to grow.
Among emerging markets, the Indian and Chinese bourses hold good potential given the nations' economic growth, noted Abrdn.
The dollar is expected to strengthen if interest rate cuts slow during Trump's presidency, he said.
Regarding the bond market outlook, Abrdn's recommendation has changed from overweight to neutral because interest rates will decrease more slowly.
Pongtharin Sapayanon, fixed income fund manager at Aberdeen Asset Management (Thailand), said the company forecasts the earnings per share of companies listed on the Stock Exchange of Thailand (SET) to grow 8-10% this year, which is quite high, while the projection for the price-to-earnings ratio on the SET is 15 times.
The SET index is projected to move in a range of 1,500-1,600 points over the next 12 months, said Mr Pongtharin.
Domestic interest rates have a chance to decline, in line with global rates, he said.
"Thailand is benefiting from the relocation of production bases from China, resulting in continued investment inflows, while the weakening baht is supporting export growth," said Mr Pongtharin.
Abrdn views asset class signals to be positive on global bonds, developed and emerging market equities, global property and the dollar.