Ariel’s Hobson doesn’t fear Trump’s impact on markets

Nour Azhar

By

04/09/2017

Investors can be forgiven for feeling nervous about the future of the financial markets due to the current political rhetoric coming out of the United States, but Mellody Hobson encourages people to drown out the noise and stay focused.

Hobson is the president of Ariel Investments, a US$11.8 billion ($14.9 billion) Chicago-based funds management business with a history of African-American ownership. She says despite the chaos of Donald Trump’s presidency, the US markets have remained strong.

“US consumers are working and our unemployment rate is 4.3 per cent down, from 10 per cent at the peak of the financial crisis; that’s a big, dramatic drop that represents near full employment,” she says.

Hobson, who is coming to Australia in September to speak at the Australian Institute of Superannuation Trustees (AIST) Superannuation Investment Conference, concedes that some of the rhetoric that’s come out of Washington – such as Trump’s tweets and his criticism of the media – will probably hurt the US and its “brand-building”.

Even so, she says the biggest risk to the financial markets lies in trusting some of Trump’s campaign promises, such as reducing regulation and lowering taxes, which could have global implications.

Hobson remains optimistic, however, that even if those promises go unfulfilled, the effects will be short-lived and are unlikely to derail the long-term progress of corporate America, simply because the fundamentals that underpin the financial markets remain strong.

She expects the US’s reputation as a global partner and leader to take a hit, and sees the “leadership vacuum” as an opportunity for Australia and other countries to take the lead and get their voices heard.

Hobson told Investment Magazine she is confident that the 2008 global financial crisis, which she likened to “a great depression and recession”, was a “once-in-a-lifetime moment”. She says that, despite the challenging and nearly catastrophic environment it produced, markets prevailed and recovered, adding that despite some of the more cynical and dark predictions floating around, the world is unlikely to experience an event such as the GFC again.

Geopolitical woes – and opportunies

Hobson is concerned, however, that it’s the exogenous risks, such as the geopolitical relationships and rhetoric surrounding nuclear conflict with North Korea, Russia’s meddling in the US election and the issues within the South China Sea, that are causing fear and concerns.

“[Unlike 10 years ago, we are talking about] political risks as opposed to economic risks, [where] in the GFC we were talking about liquidity and a different problem which started with the real-estate bubble and spread around the world,” Hobson explains.

Yet even during this time of feverish rhetoric, Hobson is a firm believer in Warren Buffett’s saying that “markets are stronger than governments”, and she is assured that even during political instability and challenging environments, the market offers opportunities for businesses to invest and profit.

Advocate for diversity

Hobson, who serves as a director of The Estée Lauder Companies Inc. and Starbucks Corporation, along with chairing The Economic Club of Chicago’s board of directors, says her speech at the AIST conference will touch on the Super Springboard program, which is working to get more women into board positions within superannuation funds.

She will also highlight the relevance of diversity and gender equality within the workplace, including the significance of financial literacy and the impact of financially literate women on governance in the financial services industry and performance outcomes.

“As a global society, we don’t have the level of financial literacy that we need… Financial literacy doesn’t get the same kind of attention as STEM [science, technology, engineering and mathematics], and while a lot is being done to address these issues, you don’t see it having the universality that I would hope.”