A new survey of institutional investors and hedge fund managers has found that nearly seven in ten survey participants expect that equity markets will rise if tax reform is enacted by the US Congress and an even greater percentage expect that budget deficits will also rise.

In addition, only 12 per cent of managers and investors believe that corporations will use their tax savings to expand operations or add jobs.
 
“Fund managers and institutional investors are strongly bullish when it comes to how tax reform would help equity prices,” says Sol Waksman, founder and president of BarclayHedge. “But, at the same time, there is little belief that the current tax reform proposals will improve the deficit or be used to grow the economy in general.”
 
Survey participants were asked their opinion on what would happen to equity markets if the president received what he wants in the tax bill and 68 per cent expect the market to gain. Only 16 per cent expect either a small or sharp drop in prices while 16 per cent called for no change.
 
Survey respondents were also asked how they expected companies to apportion their tax savings and only 12 per cent expect that corporations will expand their facilities or hire more workers with their tax savings. The great majority (78 per cent) of respondents felt that corporations will increase stock buybacks or dividends, make acquisitions, or invest in more automation.
 
“While managers and investors expect that the adoption of tax cuts will have a positive impact on the markets and GDP, they do not believe by a long shot that these gains will result in increased investment in plant and equipment or a rise in employment,” says Ole Rollag (pictured), Managing Principal of Murano Systems. “This could be problematic for Congress, which is likely to be sensitive to any perception that tax reform will not benefit the great majority of Americans.”