Rich investors are shunning equities because of concerns about the political impact from Donald Trump’s administration and Brexit, according to Christian Nolting, chief investment officer at Deutsche Bank AG’s wealth management unit.
“People are still cautious; there is still demand for bonds and people are not ready to move into the more risky equity space,” Nolting said in an interview in Dubai. The perception “is that there are a lot of risks out there and a lot of uncertainty.”
Markets have been reeling from unexpected events including Britain’s vote to leave the European Union and the election of Trump as U.S. president. Populist candidates in the Netherlands, France and Germany are stoking fears of a breakup of the European Union, adding to the political uncertainty. Deutsche Asset Management has cut European holdings in its multiasset funds to the lowest on record due to uncertainty about how elections in Europe will impact markets.
Currencies are now one of the most important asset classes as investors keep cash on the sidelines or in bonds, Nolting said. “We don’t expect a massive shift from bonds into equities as equities still represent a different risk profile,” he said. Some larger clients will buy stocks if they are hedged but shares are not cheap, according to the CIO.
The Trump administration is likely to pursue new infrastructure spending and lower the corporate tax rate, which will help U.S. markets, Nolting said. That’s likely to make corporate bonds more attractive as the policies reduce the probability of a recession in the next three years, he said.
Deutsche Bank Wealth Management favors emerging-market dollar bonds and prefers Asian investment-grade notes over those from Latin America due to the better political climate in the region, Nolting said.
It will take some time before investor become more confident about Europe, he said. “I wouldn’t expect people to see the outcome of say, the French elections, and then go massively in,” Nolting said. “It will take some time for investors to get used to this new environment.”