A majority of wholesale investors believe current economic trends will continue once the US Federal Reserve ends the second round of quantitative easing, with no mass sell-off of risky assets.
The results are from a survey of 120 of Schroders' intermediary clients from Europe, the Middle East and Latin America. If the participants are right, the end of central bank-induced liquidity will not scare investors into offloading unsafe holdings – a scenario which could lead to tumbling asset prices.
The results support the prediction of Willem Sels, UK head of investment strategy at HSBC Private Bank, who says the end of QE2 will not cause asset prices to deflate. He claims the global economic cycle will continue to drive prices even once the Fed ends its programme. This cycle will be driven partly by demand from emerging markets for commodities. Overall, he believes risky assets will see “somewhat slower, but still positive returns” after the end of QE2.
Sels notes that asset yields have become more negatively correlated with the US dollar since the financial crisis, but thinks the end of QE2 will begin to dissolve this correlation. He said this could provide “opportunities for relative value strategies for active managers and hedge funds”.
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