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Abu Dhabi, UAETuesday 19 June 2018

'No President in the US' spurs $53 Billion fund to sell its American stocks

Varma Mutual Pension Insurance Company has reacted to Donald Trump's unorthodox presidency

Donald Trump’s presidency has been dominated by Twitter outbursts and one Fund head feels this has turned the US into a source of global political risk. Alex Brandon / AP
Donald Trump’s presidency has been dominated by Twitter outbursts and one Fund head feels this has turned the US into a source of global political risk. Alex Brandon / AP

A leadership vacuum in the world’s biggest economy has driven the largest private-sector pension fund in Finland to cut the weight of US stocks in its 45 billion-euro (US$53 billion) portfolio.

“It seems as if there is no president in the US,” Risto Murto, chief executive officer of Varma Mutual Pension Insurance Company said in an interview in Helsinki on Wednesday. “If I look at what is the moral and practical power, there is no longer a traditional president.”

The unorthodox start to Donald Trump’s presidency - dominated by Twitter outbursts that have included nuclear saber rattling with North Korea and a defense of white nationalist protesters - has turned the US into a source of global political risk. The legislative programme that many investors had hoped would support economic growth looks to have stalled, and Mr Murto says Trump’s apparent inability to work with Congress is particularly worrying, given the global ramifications of decisions made in Washington.

“The lesson from 2008 is that if we have a problem in the US, then we all have a problem,” Mr Murto said. He described Trump’s response to demonstrations in Charlottesville as a “breaking point if you look at how business leaders reacted,” retreating from association with the president.

Varma reduced its equity weight by 5 per cent in the second quarter, mostly by cutting US. stocks. It’s now holding more cash and is ready to jump on opportunities as they arise. The fund has also shortened the duration of its fixed-income investments using derivatives positions to prepare for higher interest rates.

Some of the reduction in US stocks has to do with realising profits after “a very good run in equities since February 2016,” said investment chief Reima Rytsola. “It’s natural that it will halt a little bit.” The “US economy is still doing ok,” he said. But the bottom line is that “we are worried.”

Stocks rallied in the months after Trump’s election win, on anticipation his administration would push through a business-friendly agenda. But the president’s lack of leverage with Congress now leaves his policy agenda - from taxation to infrastructure and domestic policies - “totally open,” Mr Murto said.

One bright spot for trade-reliant nations like Finland is that a stalled Trump agenda means he may fail to push through his protectionist goals, Mr Murto said. Most of Varma’s stock portfolio is in Finnish companies that rely heavily on Asian business.

“In terms of direct exposure, the bigger news to us is that China is accelerating,” Mr Murto said.