Cautious optimism on equities amid Trump orders

Though proposed protectionist measures by US President Donald Trump are expected to have a negative impact on the economy and business sentiment, investors and fund managers are still overweight on equities.

Analysts said that fiscal policies, rather than trade policies, will be key in driving equities higher, with inflation set to grow.

“As part of our asset allocation strategy, we are overweight on equities as we see higher inflation expectations driven by commodity prices and expansionary fiscal policies by some countries ... The sentiment appear to be cautiously optimistic at the moment. Any trade restrictions, if imposed, will have China at the core as the US has the largest trade deficit with China,” said Vijay Harpalani, fund manager at Al Mal Capital in Dubai.

Less than a week after his inauguration, Trump signed an executive order to pull the US out of the Trans-Pacific Partnership (TPP), and another to build a wall on the border with Mexico. He has also been adamant about imposing tariffs on imports from Mexico and China, and has said he would rewrite the North American Free Trade Agreement (Nafta).

And while his America-first rhetoric has helped the Dow Jones Industrial Average cross the 20,000 mark, analysts said 2017 won’t be a year of smooth sailing for stocks, which are expected to see higher volatility

“2017 is expected to be yet another challenging year for investors. It would be prudent to stick to high quality securities with strong visibility in cash flows and healthy balance sheets,” Harpalani said.

On January 30, in the first trade session after Trump signed an executive order barring the admission of citizens from seven Muslim-majority countries, the volatility index (VIX) jumped nearly 13 per cent.

Naeem Aslam, chief market analyst at Think Markets, echoed a similar sentiment, saying new protectionist policies will mean more headache for investors in equity markets as they will have to digest every new piece of information and let the dust settle.

“We expect a lot higher volatility as new deals will materialise,” he said.

Aslam added, “I think both financial sector and infrastructure sectors are very prominent under the current trend, and perhaps this may be the area where most of the dividend could be for your investment

source : gulfnews