And that was just the beginning. But markets are wrong to believe that an increase in stimulus, which effectively is what Trump proposes, will sort significant effects, according to Shant.
“We have been in a bull market since 2009, one of the longest ever, and trillions and trillions of dollars have been thrown at the market since the financial crisis,” he says, adding: “Tax cuts and a tax amnesty will generate a lot of extra cash for companies that they can use. But actual value creation requires that money to be used in a profitable way.”
And that will be difficult.
“Investments would supposedly benefit. But the companies that will profit most from Trump’s presumed policies can already borrow extremely cheaply, and what puts them off investing is simply the lack of viable projects,” says Shant, who also dismisses the option of share buybacks, even though they may give a short-term boost to share prices.
“Buybacks reduce the value of companies over the long term. For long-term investor like me nothing has really changed.”
It’s too early for markets to give in to such scepticism, though investors have actually reacted.
In an echo of what happened after the Brexit vote, they have done so on the currency market: since 2 March, the currency has shed almost 6% against the euro, and the greenback was hit strongly by the news Trump had shared classified information with Russia.
“The dollar has weakened because of Trump, but I find a bit strange that the US equity market has not reacted,” says Tim Peeters, head of securities portfolios at multi-family office Portolani in Belgium.
Like most of his peers, he therefore overweights European equities versus US stocks. As the dollar has corrected though, the currency again looks comparatively attractive versus the euro, Peeters believes.
The Belgian had a large position in dollars for years until he sold it off a few months ago, but he has started to rebuild this position in recent weeks as the euro passed the 1.12 mark, reaching its highest level since early October.
“Perhaps [equity] markets just aren’t as efficient as people think, or investors simply like to be optimistic,” concludes Peeters.
Optimism indeed is in the DNA of equity investors, and it has often proved a prelude to exuberance. That US equity markets haven’t advanced much since March suggest that investors in the asset class are probably not overoptimistic, but a look at their peers in the currency market should perhaps make them a little more concerned they are vulnerable to a correction.
