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Hedge funds position for Trump 2.0

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Hedge funds bet on strong dollar continuing

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EM stocks dumped ahead of Trump inauguration - Goldman

note

By Nell Mackenzie

LONDON, Jan 21 (Reuters) - Hedge funds positioned for

Donald Trump's U.S. presidency with their highest levels of

borrowing since 2010, while betting the dollar would continue to

rise, according to bank research and industry data.

U.S. stock trading hedge funds kicked off the week with

gross leverage levels in their highest range since 2010, a note

from Morgan Stanley's ( MS ) prime brokerage seen by Reuters

showed. Gross leverage reflects how much a hedge fund has

increased its market positioning.

European stock traders wagered that European equities would

rise, especially in financial, tech and energy companies, said

the note.

Lower taxes, deregulation and higher tariffs might create

tailwinds for some U.S. stocks, but tariffs and added volatility

would deter gains more widely, said an investment letter by

James Hanbury and Jamie Grimston, portfolio managers of the two

funds at Lancaster Investment Management in London overseeing

roughly $1.4 billion in assets.

"This will be going on whilst the U.S. fiscal deficit is at

greater than 6% with the economy currently at full employment,"

said the letter.

Higher volatility and lower regulation "should be beneficial

for Plus500 and IG Group ( IGGRF ) where we have a smaller

holding," it added, referring to financial firms in which the

hedge fund held long positions.

AMERICA FIRST

Trump kicked off his White House tenure with several

protectionist policies to hoist American economic interests over

trade partners.

Going into the inauguration, hedge funds dumped emerging

markets stocks outside of China in the largest net selling since

October, said a separate note from Goldman Sachs ( GS ) on

Friday.

Hedge funds' China trades have fallen to five-year lows,

said the note.

Hedge funds trading macroeconomic signals, including

systematic trend followers, continue to bet on a strong dollar,

a separate weekly note from JPMorgan said on January 13.

"Looking at markets going forward...we are strong proponents

of the Trump trade in currency markets, strongly long the dollar

in the G10, especially against sterling and the euro," said

Russel Matthews, a senior portfolio manager in global macro at

RBC BlueBay Asset Management, in London.

Russel said the investment manager was short the pound

against the dollar "quite aggressively," given how deeply the UK

Labour Party's policies have been "picked over and criticised."

A short position implies an asset will weaken in value.

While RBC BlueBay has taken some if its trade off the table,

the firm expects continuing dollar strength to push the euro to

$1 or below.

"We know there will be punitive measures taken against

Europe...we have yet to see what these will be, but this is

coming," said Matthews.