Potential for US policy errors under Trump on the rise

WORRIES over Donald Trump’s economic policies and the potential for US policy errors rose sharply this month, according to a survey of fund managers released yesterday, prompting them to hold more cash, even though they expect growth and inflation to rise further.

Bank of America Merrill Lynch’s monthly fund manager survey for January also showed that the highest proportion of investors since 2006 think the dollar is overvalued, and the highest in almost 14 years think the euro is undervalued.

The monthly survey of 215 clients with $547 billion (R7.43 trillion) of assets under management was conducted between January 6 and 12, two months after the US election.

Since Trump’s victory, US stocks have hit record peaks, tumbling bond prices have pushed yields up to multiyear highs, and the dollar has reached a 14-year high. But these so-called Trump trades have faded since the turn of the year. Investors are increasingly nervous about what a Trump administration’s policies will be and how they will affect world trade, growth and financial markets.

The biggest “tail risks” in last month’s survey were concern of further EU disintegration or bank defaults (29 percent), and a stagflationary crash in the bond market (26 percent).