Investment View Q2 2015
The low to mildly disappointing global economic growth forces many central banks to continue or even increase their loose monetary policy which is supportive for asset prices. It also keeps down volatility. Global growth shows little signs of breaking out and the first interest rate hike by the Fed will most likely be delayed towards the end of 2015.
We are concerned about what will happen once the monetary easing programs will come to an end or is not effective anymore. Current monetary policies are unprecedented and they are pushing people into a more risky behaviour. That is not far from the behaviour of the “bad actors” in the recent past that resulted in the financial crisis we are still recovering from. It also increases the debt levels at companies and margin debt. On the other hand, Liquidity in the bond markets is dramatically decreased.
The current global equity rally started 6 years ago, equity prices having risen over 150% from its trough in March 2009. Global bond yields went down some 50% to around 1.24%. Central Banks have been trying to lower the cost of capital and spur economic growth with modest inflation. In the US this process has been partly successful, but the in the rest of the world this still remains to be seen. So far growth is relatively low and seems fragile.