Perspectives Blog

When the QE tide recedes, focus on what is revealed

Robert McConnaughey, Director of Global Research | January 6, 2014

Monetary stimulus from central banks can no longer be counted on to lift asset prices For 2014 we see a market with lower cross-correlations and more divergent investment outcomes Finding alpha opportunities requires in-depth global research to take advantage of market inefficiencies While there is fierce debate on the ultimate effectiveness of monetary stimulus surging from the central banks, one cannot dispute the boost that it has given to…

Bond yields are too low somewhere

Zach Pandl, Portfolio Manager and Strategist | July 14, 2014

Long-maturity bond yields are determined at a global level. Abnormally low forward rates are not just a U.S. phenomenon: there’s been a similar shift in the relationship between rates and growth across developed markets. If global rates remain persistently low, financial conditions will eventually need to tighten in other ways to offset this unexpected stimulus. The big surprise in bond markets this year has been the low level of long-maturity…

Is Europe heading for Japanese-style deflation?

Martin Harvey, Fund Manager, Threadneedle International Ltd | August 4, 2014

…eform, the so-called third pillar of Abenomics. Although progress on this front is much slower than monetary expansion, the determination is there to move forward. For both Europe and Japan, once the added benefit of monetary stimulus ceases, this is what will matter. The demographic consideration: The lack of population growth contributed in no small way to the demise of Japan’s growth potential and consequent stagnation. Europe faces some of th…

What to make of the rebound in emerging market equities

Dara White, Senior Portfolio Manager | April 14, 2014

…olls in India, Indonesia and Brazil have shown pro-reform candidates (or in Brazil’s case anyone but the incumbent) gaining steam and have acted as a catalyst for these markets. In China we have seen an announcement of a mini stimulus as well as some SOE reform (Sinopec’s announcing the sale of its marketing division). As for Russia, things have not escalated further for now but we remain very cognizant of tail risk in this market. While there ar…

Asset allocation – Kinetic vs. potential energy

Columbia Management Global Asset Allocation Team, | August 4, 2014

…icularly Europe where hopes were high that the economy was finally edging out of recession. Instead, the European economy has continued to show signs of disinflation, prompting the European Central Bank (ECB) to introduce new stimulus measures in June. Analysts have also reduced earnings growth estimates sharply from overly optimistic earnings expectations at the beginning of the year. It remains to be seen whether these new ECB measures will be…

ECB asset purchases — Bazooka or damp squib?

Martin Harvey, Fund Manager, Threadneedle International Ltd | September 22, 2014

…berg, Sep 14 Exhibit 4: 30-year Bund yield Source: Bloomberg, Sep 14 ECB ‘shock and awe’ policy is no Fed QE The ECB would argue that its policy will take time to have an impact. The key tangible metric in measuring how much stimulus is entering the system is the size of the ECB balance sheet. With respect to historical iterations of QE, in the U.S., Japan and UK the size of the buying programme has been known in advance. Despite the hint that t…

What investors should know about Fed forward guidance

Zach Pandl, Portfolio Manager and Strategist | March 24, 2014

…to clarify its existing approach, and nothing more. In contrast, many academic economists argue that policymakers should use forward guidance to intentionally deviate from past behavior in order to provide additional monetary stimulus at the zero lower bound—i.e. to go “lower for longer.” In our view, forward guidance that clarifies an existing framework is more credible, because the central bank will be less likely to change its mind in the futu…