Rich investors are shunning equities because of concerns about the political impact from Donald Trump’s administration and Brexit, according to Christian Nolting, chief investment officer at Deutsche Bank AG’s wealth management unit.

“People are still cautious; there is still demand for bonds and people are not ready to move into the more risky equity space,” Nolting said in an interview in Dubai. The perception “is that there are a lot of risks out there and a lot of uncertainty.”

Markets have been reeling from unexpected events including Britain’s vote to leave the European Union and the election of Trump as U.S. president. Populist candidates in the Netherlands, France and Germany are stoking fears of a breakup of the European Union, adding to the political uncertainty. Deutsche Asset Management has cut European holdings in its multiasset funds to the lowest on record due to uncertainty about how elections in Europe will impact markets.

Currencies are now one of the most important asset classes as investors keep cash on the sidelines or in bonds, Nolting said. “We don’t expect a massive shift from bonds into equities as equities still represent a different risk profile,” he said. Some larger clients will buy stocks if they are hedged but shares are not cheap, according to the CIO.

David Fuller's view

If this is true, although some of these comments in the article above are dated, it is good news for stock markets.  Significant money on the sidelines will both cushion downside risk and help to fuel the rally which follows.

When markets experience explosive upside breakouts, you can be sure that there are plenty of investors kicking themselves for being underweight and praying for a correction.