{"id":62272,"date":"2017-04-12T01:56:16","date_gmt":"2017-04-11T23:56:16","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/room-to-run-for-reflationary-assets\/"},"modified":"2019-12-31T01:52:05","modified_gmt":"2019-12-31T00:52:05","slug":"room-to-run-for-reflationary-assets","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/room-to-run-for-reflationary-assets\/","title":{"rendered":"Room to run for reflationary assets"},"content":{"rendered":"

\u201cTrump trades\u201d have run out of steam lately, amid growing market skepticism
\nabout the likelihood of significant near-term U.S. tax reform and infrastructure
\nspending. Yet we believe the bigger-picture reflation trade has room to run.<\/p>\n

Cyclical vs. defensive equity sector performance and BlackRock GPS, 2015-2017<\/strong>
\n\"cyclical_vs._defensive_equity_sector_performance_and_blackrock_gps_2015-2017.jpg\"<\/a><\/p>\n

We are in the early stages of a global reflation cycle that started in mid-2016. The
\nchart shows the better economic growth outlook reflected in our BlackRock GPS<\/em>
\neconomic indicator relative to consensus views. The BlackRock GPS<\/em> rise has
\ncoincided with the outperformance of cyclical shares geared to improving growth.<\/p>\n

The big picture<\/strong><\/p>\n

Another sign reflation is going global in 2017<\/strong>: a synchronized pick-up in economic activity and corporate earnings. We define the
\nreflation trade as favoring assets likely to benefit from rising growth and inflation, such as cyclical equities and emerging markets
\n(EM), while limiting exposure to long-term government bonds. The reflation trade is not contingent on looser U.S. fiscal policy, in
\nour view. Rather, tax reform or infrastructure spending could amplify it. <\/p>\n

In the U.S., some reflation trades that experienced a post-election run-up as \u201cTrump trades,\u201d such as small caps and bank stocks,
\nhave underperformed this year amid waning expectations of a fiscal-boost. Bond market inflation expectations have also fallen
\nlately back to December lows. Meanwhile, market segments with strong fundamentals that initially fell after the election, such as
\nEM equities, have reversed. Political uncertainty may be holding back the reflation trade, but we see the macro environment
\nultimately mattering more. Consensus growth expectations have scope to rise further, even if the biggest gains may be behind us.<\/p>\n

Most reflation trades aren\u2019t crowded or expensive, our research suggests. U.S. stock prices more fully reflect the maturing reflationary
\ncycle, and we see better opportunities in Europe, Japan and EM stocks. We also prefer U.S. credit over government bonds.