LONDON (Reuters) - The political situation in Europe, with major Western European countries approaching elections amid a rise of populism, is a key risk factor for the region’s assets, according to UK-based Royal London Asset Management.
Trevor Greetham, head of multi asset, who oversees 50 billion pounds of assets under management at the company, also told the Reuters Global Markets Forum that markets were likely to carry on taking a glass-half-full view of Donald Trump’s presidency, for now.
Here are edited excerpts from the conversation:
Question: You sound quite bearish on Europe despite being overweight equities overall. Is that the economics or the politics, or both?
Answer: Brexit and Trump reflect a populist movement against globalization ... Looser fiscal policy in Europe with transfers from country to country would be needed to offset discontent in countries where the one-size-fits-all interest rate is too high - but they are pretty much illegal under the Maastricht Treaty and would be massively unpopular in donor countries.
Q: What sort of market impact do you see going forward from the U.S. election ? Obviously we’ve already seem some pretty decent moves.
A: In many ways Trump is an independent - a hawk on trade but a dove on fiscal policy backed by a Republican congress full of fiscal hawks and trade doves. The markets have rightly judged that fiscal stimulus of some kind will get through but tariffs may or may not rise - so it’s glass half full and probably has further to run as the global backdrop is constructive with above trend global growth and loose policy.
Q: How do you see that playing out in terms of equities versus bonds?
A: We have a strong preference for stocks over bonds - this position pre-dated Trump and his stimulatory policies confirm the trend. The Fed may raise rates to offset some of the fiscal stimulus as the U.S. is in late cycle with low unemployment - but they won’t offset it all. Meanwhile, China is less likely to tighten policy despite strong money supply growth and booming house prices if they fear trade friction hurting growth down the line.
Q: What is your view on sterling and sterling assets in light of Brexit?
A: We are focusing on the journey not the ultimate outcome. What we see is uncertainty. We are neutral to underweight sterling depending on the political developments. We are cautious on domestically sensitive assets and sectors. But generally we’re keeping UK exposure close to neutral as we don’t want to take large risks in the funds on political views.
To read more comments from Trevor Greetham from the Reuters Investment Summit see
(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. For more information on the forum or to join the conversation, follow this link: here)
Reporting by Kirsten Donovan; Editing by Richard Balmforth
Our Standards: The Thomson Reuters Trust Principles.