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Wealth Manager Outlook: The big bond to equity shift approaches
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by David Campbell on Nov 08, 2012 at 00:01
Leading the charge of the QE-sceptics is Robert Jukes, global strategist at Collins Stewart, who said that regardless of extended valuations, central bank policy is more likely to nail ultra-low sovereign yields in place for the foreseeable future than to keep the bulls running.
‘Quantitative easing is largely about supporting risk assets through periods of market turbulence, but the transmission mechanism for translating that into economic growth is far from clear to us,’ said Jukes.
‘So while we expect this stimulus to underpin government bonds over the next year or two, we are not confident that risk assets, which are ultimately linked to economic growth, are underpinned in the same way.
‘In fact, while risk premia remain so high and economic growth prospects continue to deteriorate, we are not at all confident that risk asset values are at all underpinned.
‘Fixed income offers further upside in our opinion. It’s clearly very expensive relative to historic standards but it’s also well underpinned by central bank policy. Risk-adjusted, that kind of security is hard to beat when used dynamically within a multi-asset portfolio.’
This view was echoed, albeit in slightly more direct and technical terminology by Austyn James Consulting director Austyn James.
‘I went to a Bank of England luncheon recently and it’s no secret that massive stimulus is only having the effect of keeping the economy on an even keel,’ said James.
‘In real terms the economy is flatlining, and the efforts of QE to stimulate markets no longer work. At best, QE is a drug that has worn off and when re-administered, no longer has the desired effect. Banks that lend are the key and until they do, the current position will continue.’
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