By Naomi Rovnick

LONDON (Reuters)

Big global investors are exiting popular trades that bet on U.S. President-elect Donald Trump’s tax and tariff policies boosting Wall Street and wreaking damage abroad. They are now looking for opportunities among some of the significant market victims from the Nov. 5 election.

After U.S. stocks and the dollar bounced on Trump's growth agenda, trade war fears pressured Chinese, European, and emerging market assets, prompting money managers to hunt for bargains in places where pessimism seems excessive.

"The thesis that Trump is good for the U.S. and bad for the rest of the world is a very common narrative," said John Roe, head of multi-asset funds at Legal & General Investment Management, managing £1.2 trillion ($1.52 trillion).

Roe is buying non-U.S. assets that may have been excessively sold, like European car-makers and the Mexican peso, while closing pre-election positions that profited from sterling and Chinese tech stocks falling.

European auto stocks hit their lowest in almost two years on Wednesday, while the Mexican peso has fallen over 2.5% against the dollar this month, and sterling lost about 5% against the greenback since late September.

Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management, running 254 billion Swiss francs ($285.43 billion) in client funds, has increased holdings in Chinese stocks and Brazilian bonds since the election. "There will be a really good opportunity in assets that have weakened ahead of and after the election; we see a lot of value," he stated.

Investors are questioning the popular narrative that Trump will aggressively pursue inflation-raising policies and disrupt Federal Reserve rate cuts, given public concern about living costs and rising consumer prices.

TOO FAR?

Since the election eve, U.S. stocks have increased by more than 4%, while European equities have fallen by about 1%, with emerging market shares at two-month lows.

Michael Field, a European equity strategist at Morningstar, noted, "The news flow for non-U.S. markets is so negative right now that any kind of good news could move things quickly."

The euro, down about 3% since Trump's win, recently hit a one-year low of $1.052, with 10-year U.S. Treasury yields jumping 14 basis points to 4.47%, as traders bet on higher U.S. interest rates and inflation.

Europe is currently overshadowed by pessimism, worsened by Germany's governmental instability and fears for exporters. Volkswagen (ETR:VOWG_p) shares trade at about 3.3 times forecast earnings, with European chemical producers down 11% since late September.

Most investors surveyed by Bank of America last week had an underweight stance on Europe, anticipating it would lag behind the U.S. and Asia.

Yet, Benjamin Melman of Edmond de Rothschild Asset Management plans to maintain his European exposure at market-neutral levels rather than join the selling trend. He believes European Central Bank rate cuts could stimulate bank lending and business activity.

Melman has also bought Chinese equities post-election.

INFLATION NATION?

Barclays economists indicated that while Trump's threatened 60% import tax could cut two percentage points off Chinese economic growth, the tariffs might be significantly lower and rolled out gradually.

Ramjee argues that investors are too focused on Trump's proposed import taxes and are underestimating the political risk of tariffs increasing consumer prices. "I think Trump will aim to prevent an inflation spike," he said.

Ramjee has exited U.S. Treasuries before the election but would consider buying again if yields continue their upward trend.

Craig Inches of Royal London Asset Management, managing almost £170 billion, has taken profits from a pre-election bond trade that capitalized on rising U.S. inflation expectations.

UK government bonds, whose prices have declined along with Treasuries, now appear "exceedingly cheap," according to Inches.

Marlborough CIO Sheldon MacDonald believes Trump's tax and spending agenda will stimulate U.S. growth and global trade, limiting negative impacts on other countries from tariffs. "What's good for the U.S. tends to be good for the rest of the world," he stated, favoring Britain's exporter-heavy FTSE 100, which has fallen around 1.3% since Nov. 5.

($1 = 0.7881 pounds)