“I think all of the fiscal stimulus that he is likely to embark upon, will finally, I think, address the weak inflation that the U.S. has had for several years now,” Verghese said. “So, I think we will see a steepening of the interest curve and the yield curves. And that will have a ripple impact across the globe in terms of a steepening yield curve; if he really follows through on all his fiscal stimuluses.”
In fixed and long-term investments the impact from interest rates and the steepening yield curve will have a larger impact, Verghese said.
“So, all our long-term borrowings we have currently fixed our interest rates, so that we're not subject to any near-term volatility in those interest rates,” Verghese said. “And we have hedged ourselves as much as we can.”
The second impact that Verghese is concerned about is Trump’s policies on trade. Once again, if he follows through he is likely to impose trade sanctions, protective tariffs or punitive tariffs. The primary focus is Mexico and China, which Verghese said may have a negative impact on global trade and global GDP growth.
“For Olam, neither China nor Mexico is important today in our portfolio,” Verghese said. “And therefore, the impact on Olam directly from what will happen in China and Mexico and the U.S. trade wars against these two countries, would be very, very limited. But obviously overall there will be tit-for-tat in terms of a trade war breaking out globally. And that could have bigger consequences for all countries. I think de-regulating liberalized trade is always positive for a trading company like Olam. And more regulated, protected markets pose a little bit more of a challenge for trading businesses like ours.”
What has been viewed as upset votes in the presidential election and the earlier Brexit vote in the U.K. has some questioning other upcoming elections. In Italy, parliament voted to move the country from a bicameral system to a new system with reduced powers for the senate, and a redefinition of powers between local and central institutions. The majority vote was too small so a public vote is necessary on Dec. 4.
“And if this trend persists — and it is an anti-establishment, anti-globalization trend that the elites have taken care of themselves, there’s widening income disparities and the people who are being impacted by globalization — aggregate everybody has benefited, but there are a lot of people who have lost out big time as a result of that,” Verghese said. “And governments across the board have not really provided a safety net for them. And that is the backlash that we are seeing.”
Verghese said the company is well positioned no matter the outcome of the votes.
“But overall we are doing various scenarios in terms of what the impact of all this could be in our business,” Verghese said. ‘And we are trying to position ourselves as well as we can to hedge ourselves and also take advantage of what are opportunities that this might present.”