By Claire Milhench
LONDON (Reuters) - Global investors raised their U.S. equity holdings to an 18-month high in January, betting fiscal stimulus from U.S. President Donald Trump will spur growth, but doubts are growing whether he can deliver as much as markets have priced in.
A Reuters monthly asset allocation poll of 47 fund managers and chief investment officers in mainland Europe, the United States, Britain and Japan showed U.S. equity holdings at 41.8 percent of investors' global equity portfolios - the highest level since June 2015.
But Tuesday's survey, carried out Jan. 16-30, also suggested markets may have overcooked the "reflation" trade.
U.S. stock markets hit record highs in January (.SPX) (.IXIC) on expectations that Trump's promises to push through $1 trillion in tax cuts and public spending would boost corporate earnings and fuel economic growth.
"The U.S. equity market does look expensive, but a positive economic outlook and revenue-driven earnings growth are keeping investors' appetite ...buoyant," said Peter Lowman, chief investment officer at UK-based wealth manager Investment Quorum.
However, 55 percent of poll participants who answered a question on Trump's fiscal stimulus plans thought they would fail to meet existing market expectations, while protectionist measures were seen posing a threat to global trade.
"Financial markets have priced in a degree of good news about an upturn in the global economy," said Andrew Milligan, head of global strategy, Standard Life Investments. "A major risk therefore is that markets are surprised by how aggressive the Republicans are on trade and immigration matters."
Immigration curbs announced by Trump triggered an equity sell off on Monday, with world shares posting their biggest daily fall in 1-1/2 months .
PROTECTIONIST RHETORIC
Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM), said Trump's unpredictability could create risks in markets if his protectionist rhetoric began to take precedence over the promise of stimulus.
"Recent pull-backs in the dollar and U.S. equities suggest some investors are unwinding their Trump trades," he added.
Mouhammed Choukeir, chief investment officer of Kleinwort Hambros, questioned whether Trump could deliver on a guarantee of annual economic growth of 3.5 percent.
"That level of growth has not been hit in the U.S. for over a decade, and wildly pumping fiscal stimulus into the economy will do nothing to address fundamentally poor demographics – made worse by immigration curbs – or slowing productivity," he said.