"Economic fundamentals are still supportive of stocks, with growth picking up and interest rates staying low," said Trevor Greetham, head of multi-asset at Royal London Asset Management. Global stock markets surged to record highs in April in a relief rally after the French presidential election's first round.
With the market's favoured candidate, centrist Emmanuel Macron going through to face far-right leader Marine Le Pen, worries about an anti-EU candidate winning have receded. The Reuters poll was carried out between April 18 and 26, but some asset managers waited until the results of the April 23 French vote were known before completing the survey. British Prime Minister Theresa May's decision to call a snap general election for June 8 also cheered investors, who raised their UK stock holdings 1.1 percentage point to 10.2 percent.
Some, like Peter Lowman, chief investment officer of wealth manager Investment Quorum, believe a larger Conservative majority will strengthen May's hand when negotiating the terms of the UK's Brexit deal. But managers trimmed US equity exposure to 40.5 percent, the lowest level since Trump was elected in November, as doubts about the reflation rally grew.
Robeco strategist Peter van der Welle is underweight US equities and said: "The US has the highest valuations, while it is also the region where the soft versus hard data conundrum is the most pressing." US stocks have surged to record highs on Trump's promises to cut taxes and boost public spending, but after his failure to push through a key healthcare reform bill, investors are beginning to question if markets have got ahead of themselves.
About two-thirds of poll participants who answered a special question on US tax reforms do not expect Trump to push through comprehensive tax cuts this year. His proposals have also fallen short of the comprehensive measures sought by businesses and wealthy taxpayers.
"Trump does not have the political savvy or support to carry his flamboyant campaign pledges through Congress," said Rob Pemberton, investment director at HFM Columbus. Jan Bopp, asset allocation strategist at Bank J Safra Sarasin, thought that getting approval for deep tax cuts would be at least as difficult as the failed healthcare reform.
"Not only because there is an even deeper split on this issue in the Republican Party than on healthcare reform, but also because these plans affect the interests of all business sectors," he said. Investors were even more united in their views on the euro/dollar exchange rate, with almost 90 percent of those who answered a special question not expecting it to dip below parity this year.
The euro hit a five-month high after the French election's first round, posting its biggest one-day rise since last June on Monday. Robeco's van der Welle said a euro-friendly outcome in the French election could "dent the hopes of Grillo's Five Star Movement in Italy to deliver a mortal blow to the euro project".
Ken Dickson, investment director at Standard Life Investments, said much now depended on US interest rate moves. "More recently US data has become more mixed and the recent US CPI report was surprisingly soft. If this trend continues the probability of breaking parity will diminish rapidly," he said.
Investors were relatively bullish on emerging markets and over 90 percent who answered a special question on the sector predicted more inflows. Within funds' global equity portfolios, emerging stocks now comprise 15.4 percent, up from 14.9 percent in March. Allocations to Asia ex-Japan rose to 7.1 percent, a six-month high. Emerging debt accounted for 10.8 percent of global bond portfolios, up from 10.5 percent last month.
Jonathan Webster-Smith, head of the multi asset team at Brooks Macdonald expects more inflows, driven by the reflation trade, the global growth picture and attractive valuations. Justin Onuekwusi, a fund manager at Legal & General Investment Management, agreed. "A yield of 5 percent is attractive in this low-yielding world and relative to other credit type instruments denominated in US dollars, it is hard not to be positive on EM debt hard currency," he said.
Copyright Reuters, 2017