The unleashing of animal spirits

Donald Trump’s presidential win has unleashed animal spirits in the US that are likely to continue to drive equities forward in 2017. So argues Frank Bigler, head of equity investment research at Pictet Wealth Management, in the latest special edition of Perspectives. There are undoubtedly risks, but for the moment, “the overall direction of the market is still up”, according to Bigler “and any pull-back would be taken as an opportunity to exploit”.

Sector wise, US banks stand to benefit from the Trump administration’s commitment to boosting growth and lightening regulations. But banks, both in the US and Europe were already recovering before the presidential elections. From being the worst-performing sector in the first half of 2016, banks became the best performing in the second half as bond yields and inflation expectations rose from their July low points. As for the way forward, Yann Goffinet, senior financial analyst with Pictet Wealth Management, argues that in spite of low returns on equity, the environment for banks “may steadily become less challenging and normalise” as long as 2016 marked the low point for global interest rates.

Alternative assets also look set to do well in the new climate, with the Trump election possibly helping “reset the dynamics of the hedge fund industry” after a difficult 2016, according to Nicolas Campiche, CEO at Pictet Alternative Advisors. In particular, the reassertion of fundamentals as central bank invention fades favours active management, Campiche believes.

This issue of Perspectives comes in a newly designed format. Staying true to Perspectives’ remit to showcase PWM’s forward-looking analysis of macroeconomic and investment trends, the special edition has a special focus on reflation and its consequences for the world economy as well as for equities, bonds and alternative assets.