Investors position for Trump growth boom over next 12 months

Global investors are positioning themselves for a mini-economic boom over the next 12 months in another sign of revived animal spirits following the election of Donald Trump, according to a major survey of money managers.

Underscoring a sharp reversal in the prospects for the world economy, 23 per cent of investors surveyed by Bank of America Merrill Lynch said they expected above trend global growth and inflation over the next year, climbing from just 1 per cent during the same period in 2016.

Equity markets have been buoyed by the new White House administration’s promise to unleash major corporate tax cuts and bumper government spending, with Mr Trump’s election lifting the dollar, inflation expectations and short-run GDP forecasts in the world’s largest economy.

Of the 210 money managers surveyed, 43 per cent said they expected a continuation of “secular stagnation” over the next 12 months, dropping from 88 per cent over the same period in 2016. The term secular stagnation — revived and popularised by former US Treasury secretary Larry Summers since the financial crisis — has been used to describe a persistently low growth and low inflationary environment that has threatened to beset developed world economies since 2008.

In Europe, sentiment remained bullish but investors are increasingly eyeing a packed roster of major elections in the single currency area over the next six months. The threat of a “disintegration” of the EU project was cited as the single biggest “tail risk” facing investors this year, at 36 per cent, followed by risks of a global trade war at just under a third.

Bearish sentiment has been concentrated on France, a founding member of the EU, where rising Euroscepticism has spooked markets. Sentiment towards French stocks has fallen to its lowest level in nearly two years this month — making them the least loved asset class in Europe, said BofA.

The country’s main stock index, the CAC 40, is up just 0.6 per cent this year, underperforming its German rival the Dax (up 2.5 per cent) and the FTSE 100 (up 2 per cent) in 2017.

An unpredictable election race has also seen investors dump French bonds. While the far-right Marine Le Pen is seeking to take the country out of the eurozone, the erstwhile favourite for the job — centre-right François Fillon — has been engulfed in a family payments scandal this month. That has helped send the country’s benchmark 10-year bond yield, which reflects the government’s borrowing costs, from a record low of 0.1 per cent to more than 1 per cent since the autumn. Yields rise when bond prices fall.

Latest betting odds from Betfair show Ms Le Pen has a 69 per cent chance of winning the first round vote in late April, but will be beaten in the second round vote a week later regardless of her opponent.

BofA’s global survey was carried out between February 3-9, with investors reporting a total of $632bn in assets under management.