The victory of Republican candidate Donald Trump in the US Presidential election has resulted in selling in the emerging markets (EM) and technology stocks, accelerated rotation into banks, out of high dividend yield and bond proxies and has catalysed buying of US equities, shows a fund managers’ survey conducted by Bank of America Merrill Lynch.
According to the November fund manager survey, allocation to emerging markets (EM) have fallen to 4% from previous month’s 31%, highest fall since February 2011. On the other hand, allocation to Eurozone equities improved to a 5-month high at 8% from previous months 5% and allocation dipped in Japanese equities 5% underweight from net 3% underweight last month.
Global growth expectations jump to the highest reading in 12 months at net 35% from net 19% last month. Global inflation expectations have soared to a 12-year high of 85% and as almost 56% of investors think current fiscal policy is too restrictive, shows the survey. In November, cash levels fell to 5.0% compared to 5.8% in October. Almost 44% of investors think the rotation to cyclical styles and inflationary sectors will continue well into 2017. However, stagflation expectations now close to four-year high as 22% of investors expect below trend growth & above-trend inflation over the next 12 months.
“There will likely be a trade in “bond proxies” soon but our cyclical view of peak liquidity, globalisation, inequality means the “yield” dam has been broken,” the report stated. According to the survey, the top three most crowded trades, long high quality/minimum volatility, long US/EU credit and long EM debt, remain vulnerable to further jump in yields.