“There has been a dearth of contrarianism since the financial crisis,” said Laurence Taylor, a member of T. Rowe Price’s global equity team, speaking at the Expert Investor Belgium forum last week. “It has shortened people’s time horizons, increased career risk and has forced people to fear being contrarian. But it’s going to be necessary to be just that as we go through the next cycle of the equity market,” he stressed.
For a fund manager, to be contrarian is to buy a stock when the market consensus is that this stock’s share price is going to go down. Those who increased their equity exposure on election night, when Asian stock market initially tanked before quickly recovering their losses, made handsome profits on the back of the herd mentality of others.
But it’s always easy to talk with the benefit of hindsight. Taylor admitted it’s difficult to see the contrarian opportunities at this moment, especially in US equities. “Near term caution is warranted, as markets have really started pricing in a genuine belief that Trump is going to re-accelerate the economy and implement fiscal stimulus, with tangible impact on commodity and energy prices and industrials,” he said.
Trump troubles
Investors across Europe are not quite so sure that’s going to happen. Half of fund buyers attending Expert Investor Belgium believe a Trump presidency will be detrimental to the global economy, reflecting the picture that emerged at the other two Expert Investors Forums that were held across Europe since Trump’s election. On top of that, a stunning 42% of Belgian fund investors expect a market correction of more than 10% to occur this year. And we’ve got only five weeks left…
Export-dependent emerging markets are particularly badly placed to deal with a Trump presidency, according to European investors. Appetite for EM equities and debt has declined significantly since Trump’s election (read the upcoming Expert Investor magazine for details on that), and almost 60% of delegates at Expert Investor Belgium believe emerging market assets are most at risk from a Trump presidency (see chart). So perhaps emerging markets are the place to for contrarian investors right now…
Here you can see a full overview of delegate voting results from Expert Investor Belgium.
