Global investors’ equity holdings rose to six-month highs in December on bets that US president-elect Donald Trump’s promised fiscal splurge would spur higher growth and inflation, a Reuters monthly poll showed.
Mr 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 US, Britain and Japan.
It showed equity holdings at 45.3%, 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 US to emerging markets.
“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 US 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. 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%, the lowest since February, reflecting growing confidence that the rally triggered by Mr 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, defence, technology and value stocks in 2017.
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.
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