The week following Donald Trump’s surprise victory as President-elect of the United States has been one of the most volatile in investment markets since the global financial crisis almost a decade ago, but superannuation managers are being deliberately slow to act.
Mine Wealth + Wellbeing chief investment officer David Bell said it was best to ignore most of the speculation about what a Trump administration in the US may or may not mean for global markets.
“Frankly I am uncomfortable with some of the questions about what we think Trump means, because you are pushing us to come up with short-term answers when we are strategic long-term superannuation investors,” Bell said.
Mine Wealth + Wellbeing is a $9.5 billion public offer industry super fund, formerly known as Auscoal.
Cbus executive manager investment strategy Kristian Fok said he had been surprised not only by Trump’s election, but by how quickly sharemarkets had bounced back. However, he noted bond markets are positioned for a high-risk, high-volatility period ahead.
Cbus is a $34 billion industry super fund.
Trump’s victory comes just a few months after markets were hit by the shock “Brexit” result in the United Kingdom’s referendum to leave the European Union.
Challenger Life chief investment officer Chris Plater said his group had done scenario testing on both Brexit and a Trump win but this was “of pretty questionable value” because it is so difficult to model how markets react to events.
While long-term major institutional asset owners, like super funds and life insurers, are being careful not to have a kneejerk reaction to Trump, many in the funds management industry see a need to rethink portfolios more quickly.
Invesco chief strategist and head of multi-sector Rob Waldner reckons there is a real chance that Trump’s election will go down in financial markets history as something more significant than just another blip. That is if the President-elect of the world’s biggest economic super power can effectively institute a few of his headline policies.
“The votes for Brexit and Trump were effectively votes against low rates and low growth,” Waldner said.
“If the Trump administration does what they say they are going to do in terms of corporate and individual tax cuts then the stimulus will be massive.”
Waldner said bank and health care stocks had already started to respond to the rising expectation that Trump will be successful in repealing or significantly modifying Dodd-Frank and the Affordable Health Care Act.
“Maybe things are starting to be driven by growth and not just liquidity,” he said.
Invesco is US-based global investment firm with $US770 billion ($1 trillion) under management.
Hexavest vice president Marc Christopher Lavoie said the early enthusiasm of equity market investors for Trump’s plan to turbo-charge fiscal stimulus in the US was premature.
“Some of Trump’s ideas look nice on paper, like cutting taxes and spending more money on infrastructure,” Lavoie said.
“But if it was that easy someone would have already done it.”
Lavoie thinks sharemarkets are staged for a serious tumble.
“There is a big disconnect between market valuations and real company profits at the moment and we think that, like in 2008, those things will have to reconnect somehow, either through better corporate earnings or downmarkets,” he said.
Lavoie said equity markets had bounced back so quickly following Brexit and Trump’s win due to a dangerous complacency about central bank support.
“In equity markets everybody keeps buying the dip because they are confident central banks will step and at this point we really caution against that strategy,” he said.
Hexavest is a $CA18.4 billion ($18.37 billion) investment management firm based in Montreal, Canada.
Rogge Global Partners head of global high yield David Newman said it would be a dangerous strategy to make investment decisions based on top-down assumptions about what Trump would do and the impact on interest rates. Instead, he said, bottom-up company analysis was more important than ever.
“The most levered companies are going to suffer regardless of what Trump does.”
Rogge Global is a London-based fixed income house with roughly $US35 billion ($47 billion) under management.
All comments quoted in this article were made during the Conexus Financial Fiduciary Investors’ Symposium in Healesville, Victoria November 14-16.