Poll: As 2016 ends, 'Trumponomics'
tempts investors back to equities
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[December 22, 2016]
By Claire Milhench
(Reuters) - Global investors' equity holdings rose to six-month highs in
December on bets that U.S. President-elect Donald Trump's promised
fiscal splurge would spur higher growth and inflation, a Reuters monthly
poll showed on Thursday.
Trump's plans to cut taxes and boost spending have sent Wall Street to
record highs in December as investors pile into everything from banks,
to energy and materials and other infrastructure-related names.
The last Reuters asset allocation poll of 2016 surveyed 45 fund managers
and chief investment officers in mainland Europe, the United States,
Britain and Japan.
It showed equity holdings at 45.3 percent, the highest since June,
capping an eventful year that saw a significant worldwide lurch towards
populist, anti-establishment political movements but also signs of
economic recovery - from the United States to emerging markets.
Possibly the biggest upset was the Nov. 8 U.S. presidential election win
for tycoon Donald Trump, whose economic and trade policies will shape
next year's investment landscape.
"Trumponomics will be a key factor to watch in 2017," said Matteo
Germano, global head of multi-asset investments at Pioneer Investments.
"If his proposed infrastructure spending, fiscal easing and tax reforms
are effectively implemented, the U.S. reflation stimulus will likely
strengthen GDP growth, inflation and earnings growth."
While failure to deliver this may trigger volatility, investors reckon
that will throw up opportunities for canny stock-pickers.
"Be ready to buy dips," said Trevor Greetham, head of multi-asset at
Royal London Asset Management (RLAM). He argued that the surge in
populism that had dominated the political and economic landscape in 2016
would continue to exert its "erratic influence" in 2017, and he expected
volatility to rise generally.
"This will create good opportunities to buy stocks, but it would make
sense to trim exposure when things appear too good to be true," he said.
The poll showed cash holdings dropping more than one percentage point to
5.4 percent, the lowest since February, reflecting growing confidence
that the rally triggered by Trump's election win still had legs.
As well as the energy and infrastructure-related names that may benefit
directly from "Trumponomics", poll participants also saw opportunities
in commodities, beaten-down European banks, defense, technology and
value stocks in 2017.
The poll was carried out from Dec. 15 to 21, immediately after the U.S.
Federal Reserve's December meeting at which it raised interest rates and
signaled it could hike them three times in 2017, once more than
Some participants worried about the potential fallout - reflected in
cuts to emerging market equities and bonds - but the overall mood was
positive, with U.S. equity exposure raised to 41 percent, the highest
since September, and UK stocks raised to 11.3 percent, the highest since
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A TV screen showing U.S. President-elect Donald Trump is pictured in
front of the German share price index, DAX board, at the stock
exchange in Frankfurt, Germany, November 9, 2016. REUTERS/Kai
Whilst investors acknowledged that equities did not look cheap, some
managers argued that they still offered better value than bonds, and
were likely to continue to do well as growth accelerated in 2017.
Some, such as Ryan Boothroyd, an analyst with the multi-asset team
at Henderson Global Investors, argued that Japanese and euro zone
equities were better ways to play U.S. domestic strength than the
more crowded U.S. trades.
The overall allocation to bonds was steady at 40.8 percent, with
several managers saying inflation-linked bonds offered good value,
especially considering the recent rise in oil prices.
"We also like EU inflation-linked securities, as they discount a
very pessimistic inflation scenario in the Eurozone," said Pioneer's
Even though the dollar has raced to 14-year highs against a basket
of currencies in the wake of the Fed meeting, only a slim majority -
52 percent of poll participants who expressed a view - thought the
euro/dollar exchange rate would break below parity in 2017.
Parity was last hit in 2002. Launched in 1999 at $1.1747 the euro is
currently trading around $1.0430 <EUR=>.
Several said any fall below parity would be short-lived - for
instance, Jan Bopp, an asset allocation strategist at Bank J Safra
Sarasin, saw further euro weakness offset by inflows into European
equities, which remain cheap relative to U.S. peers.
And Henderson's Boothroyd said: "Towards mid-year we believe that
there is scope for a weaker dollar and stronger euro as some of the
European political risks fade, talk of the ECB taper returns to
markets and Trump's policy program gains greater scrutiny."
Another significant 2016 political shock was Britain's June 23 vote
to leave the European Union. The outcome has sent sterling plunging
around 16 percent against the dollar year-to-date.
But around 60 percent of those who answered a special question on
the subject thought the worst was over for the British currency.
Raphael Gallardo, a strategist at Natixis Asset Management, argued
sterling's fall had boosted the UK economy's competitiveness, while
the loss of market access to the European Union would not
materialize until 2019-20.
"Markets over-reacted to the prospect of Brexit," he said.
(Additional reporting by Maria Pia Quaglia Regondi and Hari Kishan;
Editing by Hugh Lawson)
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