Investors started off the New Year by moving into US equity
funds for the seventh time in the nine weeks since Donald
Trump’s election victory.
Stats from Deutsche Bank show equity fund positioning has
been rising in the first week of 2017 from underweight to
neutral after modest outflows in the last two weeks of
Both US mutual funds and long-short equity hedge funds are
now overweight financial stocks, materials and consumer
Trump’s agenda revolves around broad-based
deregulation, corporate tax reform and infrastructure spending
to stimulate economic growth.
His plans have reinforced a positive US equity outlook and a
strong performance of developed market stocks since his
surprise election win in November.
This trend has extended into 2017 and on Monday the Nasdaq
composite notched a fresh record high while Tuesday saw the
UK’s FTSE 100 finished at a ninth consecutive
Despite concerns over Trump's promises to rip
up trade agreements and costly immigration plans
which could slow economic growth, US earnings
growth is expected to rise sharply by year-end 2017, with
financials expected to be among the biggest winners.
Dennis Jose, equity analyst at Barclays, warned this week
that earnings, not elections, should be the dominant driver of
equities in 2017.
Meanwhile developed market bond funds and emerging market
mandates (both bond & equity funds) have been held back on
rising inflation expectations for the former, and fears of a
strong dollar and trade protectionism for the later.
Short positions in bond futures have risen further into
David Folkerts-Landau, group chief economist at Deutsche
Bank, reckons Trump’s economic plan is a "game
changer" for the US.
"This makes us very bullish US growth," he wrote in a note
to clients this week.
"Fiscal stimulus and broad-based deregulation are expected
to jolt the US economy toward a long-term equilibrium of higher
growth, inflation, and interest rates."
"While Trump introduces higher uncertainty, this is better
than the near certainty of the continuation of a mediocre
More importantly, Folkerts-Landau believes that the election
of Trump as the 45th President of the United States will
fundamentally re-order the economic, financial and security
arrangements of the post-WW2 era.
"We believe that these changes will have a significant
impact on the economic performance of nations, industries and
corporates across the globe."