By Naomi Rovnick
LONDON (Reuters) – Big global investors are exiting popular trades that bet on U.S. President-elect Donald Trump’s tax and tariff policies boosting Wall Street and wreaking damage abroad and swooping in on some of the Nov. 5 election’s biggest market victims.
After U.S. stocks and the dollar bounced on Trump’s growth agenda and trade war fears pressured Chinese, European and emerging market assets, money managers are hunting for bargains in places where pessimism may have gone too far.
“The thesis that Trump is good for the U.S. and bad for the rest of the world is a very common narrative,” said John Roe, head of multi-asset funds at Legal & General Investment Management, which manages 1.2 trillion pounds ($1.52 trillion) of investments.
He said this had convinced him to buy non-U.S. assets that may have been excessively sold – like European car-makers and the Mexican peso – and close pre-election positions that profited from sterling and Chinese tech stocks falling.
European auto stocks touched their lowest in almost two years on Wednesday while the Mexican peso has fallen more than 2.5% versus the dollar this month and sterling is down some 5% against the greenback since end-September.
Shaniel Ramjee, a multi-asset co-head at Pictet Asset Management, which runs 254 billion Swiss francs ($285.43 billion) of client funds, said he had increased holdings of Chinese stocks and Brazilian bonds since the election.
“There will be a really good opportunity in assets that have weakened ahead of and after the election, we see a lot of value,” he said.
Investors are now questioning the popular market view that Trump will aggressively pursue policies that exacerbate U.S. inflation and derail Federal Reserve rate cuts, given voter anger about living costs and consumer price rises.
TOO FAR?
Since the eve of the election, U.S. stocks have risen more than 4% while European equities have fallen about 1% and emerging market shares are at two-month lows.
“The news flow (for non-U.S. markets) is so negative right now that any kind of good news could move things quickly,” Morningstar European equity strategist Michael Field said.
The euro, down about 3% since Trump’s win, hit a one-year low of $1.052 this week and 10-year U.S. Treasury yields jumped 14 basis points (bps) to 4.47%, as traders bet on higher U.S. interest rates and inflation.
Europe is mired in pessimism, exacerbated by the collapse of Germany’s government and fears for exporters, with Volkswagen shares trading at about 3.3 times forecast earnings and European chemical producers down 11% since late September.