Investors speaking at the IPE Conference last week saw opportunities in private markets and expressed concerns about the medium to long-term outlook for the US, despite markets’ current risk-on stance.
Barry Kenneth, chief investment officer of the UK’s £32.5bn (€39bn) Pension Protection Fund (PPF), expressed a strong preference for private markets. “Opportunities remain in private markets, especially in private credit,” he said. “In the listed market, on the other hand, we see excessive volatility.”
Private market allocations also help to protect against inflation, which is at a risk of ticking up again, especially in the US, added Niklas Ekvall, chief executive officer of the SEK533bn (€46bn) Swedish buffer fund AP4.
“But as a buffer fund, in the long run we still need to have quite a lot of listed equity exposure too,” he added.
Kenneth said he would stick with US equities, if only because they are a safer short-term bet in an equity market that otherwise does not look very attractive.
“There will be some challenges with Trump’s narrative of tariffs, the deportation of illegal immigrants, deregulation and lower taxes. But the US will continue as the economic driver of Western economies,” said Kenneth. He added that, overall, equity return projections based on current valuations are “as low as they have been in the past 10 years”.
It would be hard to see how equities would show double-digit returns again in the next three to five years, he said.
Speaking on another panel, Amundi’s global CIO, Vincent Mortier, also pointed to the inflationary impact of mass deportations of migrants and tariffs, adding that the US could experience a stagflation scenario in mid-next year, for which the market might not yet be prepared.
He also pointed to the budget and debt trajectory of the US.
Laurent Clavel, global head of multi-asset at AXA Investment Managers, said he has increased allocations to risky assets and the US in its portfolios since Trump’s election.
Trump-trade momentum, for now
“In financial markets there is momentum in a lot of trades. If you are ready to accept that you have missed the first wagon of the trade, you can get on the second wagon,” Clavel said, pointing to his portfolios’ increased exposure to domestic-oriented US companies, regional banks and large banks.
Some saw US president-elect Donald Trump’s threats to launch a trade war on multiple fronts as mostly a negotiating tactic.
“I think Trump will be pragmatic as he was in his first term because it’s important for him that the S&P 500 is doing well. For him that’s a measure of success,” said Yolanda Blanch, president at the €7bn Spanish pension fund Caixa 30.
“I remember him tweeting at five in the morning how great the S&P was doing,” she added.
Echoing other notes of caution, Mortier warned that “next year is another story”, and suggested diversification away from the US to look at Europe and parts of Asia.
However, Mortier also raised the risk of deflation in Europe, an unstable political environment, and a Mario Draghi report that might prove hard to implement.
Clavel said: “It is very easy to explain why Europe is going to underperform. What you are looking for is the collapse and capitulation in sentiment and positioning, when nobody wants to buy Europe. That is when you go back, and US investors will do it unhedged.”
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