Reading Trump Won’t Save Your Portfolio, Nordea Strategist Says

  • Chief strategist at biggest Nordic bank looks past the ‘noise’
  • Stocks remain preferred bet, even given correction risk

Investors may be wasting their time fussing over the potential fallout of political risk on their equity models.

It’s a theory that the biggest bank in one of the richest corners of the globe is taking seriously. After wading through hundreds of analyses of Brexit and Donald Trump in the past year, Nordea Bank AB’s chief investment strategist has concluded that political disruptions are mostly noise.

Political shocks create headlines in the short term, but the real impact on the economy is less pronounced than you’d think, according to Michael Livijn, whose recommendations guide about $100 billion in investments for Nordea’s wealthiest clients.

“How the companies are performing is more important for stocks than Trump’s policies,” Livijn said in a phone interview from Stockholm on Tuesday. “That’s, after all, the main driving force for stocks. Politics have some influence but profits, valuation, and so on, are longer term more important factors than politics.”

With that in mind, Nordea is overweight global equities, reflecting its view the asset class will outperform others. It doesn’t have any particular regional preference. Higher interest rates shouldn’t pose too many obstacles, provided these reflect improved economic conditions, according to Nordea’s asset allocation strategy for January.

Read more: Trump throws his weight around in U.S. auto industry

Fiscal Largesse

Trump’s pledges of fiscal extravagance have already triggered a stock rally, with the Dow Jones Industrial Average up about 8 percent since the November election. The S&P 500 Index has risen about 5 percent since Trump’s surprise victory. Such gains have increased the risk of a correction in the short term, but not one that should force investors to recalibrate their world view, according to Livijn.

“We don’t see that as a reason to reduce equity exposure and reduce our overweight,” he said. “It’s a short-term risk one has to live with.”

The upshot remains that “the fundamental picture speaks for an overweight in stocks versus long rates,” he said.

Spotting Bubbles

Nordea sees corporate profits rising 5-7 percent, globally, in 2017. That development may fuel global stock returns of 5-10 percent, it estimates.

“It’s neither cheap nor expensive,” Livijn said. “That means, if profits continue to grow, today’s valuation is not an obstacle for a continued rally.”

And for those wondering whether the gains are sustainable, Livijn has this to say: “Stocks aren’t in any way in a bubble. But profits must deliver for a continued rise.”

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