November 11, 2016 / 8:07 PM / 2 years ago

Fairfax cuts equity hedging, sees U.S. rally after Trump win

A man walks past a Fairfax Holdings sign directing shareholders to the meeting, at the annual general meeting for shareholders in Toronto, April 9, 2014. REUTERS/Mark Blinch

TORONTO (Reuters) - Fairfax Financial Holdings Ltd (FFH.TO), a Canadian firm headed by high-profile investor Prem Watsa, said on Friday it planned to significantly reduce its defensive equity hedges due to Donald Trump winning the U.S. presidential election.

Watsa made billions for Fairfax by correctly calling the 2008 financial crisis, but has since been famously bearish on the outlook for global equity markets. Last week, he said Fairfax would maintain defensive equity hedges and deflation protection as it remained concerned about the financial markets and the economic outlook in a global deflationary environment.

However, Fairfax said on Friday that, after considering the effect of the U.S. election and the potential for changes that might dramatically impact the U.S. economy and U.S. equity markets, it now deemed it prudent to cut back its hedging.

“We believe the U.S. election may result in fundamental changes that may bolster economic growth and business development,” Watsa, Fairfax’s chairman and chief executive, said in a statement.

“As a result, there is the potential for a longer-term rally in U.S equity markets that reduces the need for the capital preservation protection of equity hedging,” he added.

Fairfax said it had cut its equity hedging to 50 percent of its total equity holdings from 113 percent at the end of September. The company said it will continue to evaluate the post-election U.S. economic indicators and may determine to reduce its equity hedges further.

The Dow Jones industrial average hit a record high following Trump’s election with some investors optimistic Trump’s planned fiscal stimulus will generate growth while potentially lighter regulation of industries such as financial services and pharmaceuticals could see valuations rise.

Reporting by Matt Scuffham; Editing by Lisa Shumaker

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