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Investors chase reflation trades via stocks, emerging assets BAML


´╗┐Global investors poured money into stocks, emerging markets and corporate debt in the week to Wednesday, as they continued to chase the Trump-induced reflation trade, data from Bank of America Merrill Lynch (BAML) showed on Friday. Since Donald Trump's U.S. presidential election win last November, investors have bet that his promised fiscal splurge will boost growth and inflation, fuelling a rally in U.S. stocks. Although details of his spending program are still scarce, an announcement on Thursday of a "phenomenal" tax plan over the next few weeks sent all three U.S. stock indices to record highs. "It's inflation-on in stocks," BAML analysts said in a note. "Flows, at least this week, are clearly showing no fatigue in the 'leadership' of the reflation rally." BAML remains bullish on risk assets, the bank added. Investors added $6.3 billion to equity funds in a sixth straight week of inflows, and while U.S. stock funds saw outflows, value-oriented U.S. equity funds attracted $1.9 billion while Japanese equities received $3.4 billion.

BAML said this was the largest week of inflows for Japan since the election. Japanese exporters are expected to benefit from U.S. growth as consumer spending picks up. Investors also poured into emerging markets, with some $2.5 billion of inflows to emerging debt funds, and $1 billion of inflows to emerging equity funds. Together, emerging stocks and bond funds have seen $11 billion in inflows year-to-date, with the benchmark emerging equity index powering to five-month highs.

Emerging stocks have effectively reversed a heavy selloff that they had suffered immediately after Trump's election. Investors had feared his talk of protectionism and scrapping trade treaties would hurt export-dependent emerging economies. Now, however, investors were chasing this "cyclical laggard", BAML said, noting Trump's protectionist threats had so far proved to be dollar-negative. That "has made EM the contrarian Q1 winner", the bank added.

A dip in bond yields triggered buying of investment grade bonds with a bumper $7.6 billion of inflows, the largest since August 2016. High-yield, or junk, bonds attracted $1.9 billion, whilst TIPS funds, which invest in inflation-protected securities, took in $1 billion, their biggest week since Trump's election, the data showed.

LPL Financial fourth quarter profit surges despite regulatory uncertainty


´╗┐Independent brokerage LPL Financial Holdings Inc posted a fourth-quarter profit that surged 56 percent as an increase in advisory assets helped soften the costs of an uncertain regulatory environment. The firm, which provides products and support services to more than 14,000 independent financial advisers, reported net income rose to $41.74 million, or 46 cents per share, in the quarter ended Dec. 31, up from $26.81 million, or 28 cents a share, in the same quarter a year earlier. Total net revenue fell 1.3 percent to about $1 billion. But total brokerage and advisory assets rose 7 percent over the prior year to $509 billion, with a total of $2.5 billion in net new assets. Roughly two-thirds of new assets were from investors interested in financial advisory accounts, and a third went into brokerage accounts.

That is a departure from LPL's legacy client assets, of which 42 percent are held in advisory and 58 percent are in brokerage accounts. The wealth management industry has seen a multi-year trend of clients investing in advisory accounts, where they pay a fee based on their total assets, over brokerage, where they pay a commission per transaction. This trend was amplified in 2016 as firms prepared for the start of the U.S. Department of Labor's fiduciary rule, which aims to put clients' interests first by eliminating conflicts of interest, such as products in brokerage accounts that may pay an adviser a greater commission than others.

The U.S. Labor Department is now preparing to delay that rule. Dan Arnold, LPL's new chief executive who replaced Mark Casady on Jan. 3, said whether the rule is delayed or not, the firm will press on with compliance changes it is making, such as plans to launch a robo-adviser and the standardization of some brokerage product fees.

"A delay would be the next logical step," Arnold said. "But if you create innovation and outcomes that are better, with or without the rule, you continue with those."Casady, 56, joined LPL in 2002. He will remain on LPL's board of directors as a non-executive chair until he retires in March.