Threadneedle: Fed startet Tapering in den nächsten Monaten

“As we continue to move away from the global financial crisis, the time when monetary policy normalises must by definition come ever closer. QE has been such a dominant feature for markets over the last few years, it is easy to overlook how the investment landscape might look once the central banks step back from their purchase programmes. Certainly the Fed has signalled that its next move is to reduce its stimulus package, the only debate being around timing. Having aired its intentions in the summer , consensus had quickly converged on a likely move in September;  however, whether it was foresight around the temporary governmental shutdown, or worries about softness in the data, the Fed chose not to move at that time, leaving existing policies in place. The expectation is now that at some point between now and the end of Q1 2014, the quantum of QE will be reduced (tapering) with the most recent data last week supporting such a move as early as December this year, although that is not our central case.

This move has to be significant for investors. Indeed we got a glimpse of what it might mean over the summer when tapering talk was first muted. Gov’t bond yields rose meaningfully, equity markets had a wobble, and emerging markets especially had a significant sell off. In particular, the equity, bond and currency markets of the externally dependent emerging markets came under real pressure as the prospect of a stronger dollar and capital flight undermined the deficit countries. In the aftermath of the September decision not to taper, some calm has returned to these regions, and performance has improved somewhat, certainly for the regions equity markets. This has occurred in conjunction with a string of stronger Chinese macro data and on-going risk appetite in investment markets.

However, the jobs data release last week reminded investors that the US continues to recover, and that monetary policy will look to normalise even this is implemented slowly. Whilst the developed world remains over indebted and short rates are unlikely to rise in the near term, tapering will impact the yield curve, and long rates will rise. Against this backdrop we would expect to see a rerun of the Emerging market turbulence we witnessed in the summer, and as a result we have reduced our overweight positions in both emerging market equities and debt. Whilst the majority of the universe is not dependent on external financing, we feel that a reduction in liquidity, capital flight and general risk aversion could once again see all aspects of the regions come under pressure from a performance perspective

For equities more widely, we continue to debate and focus on the level of disappointing earnings growth seen  given the re-rating markets have enjoyed this year. In local currency, global equities have enjoyed a 25% return year to date, with the stand out being the Japanese market. Our feeling is that for markets to make progress from here we will need to see a pick-up in corporate profits which is not happening so far. Nevertheless, the Fed will only start its tapering programme once it becomes convinced that the US economy is on a firmly established growth trajectory. From a profits and valuation perspective, this will certainly need to be the case. We are watching developments closely.”