Second chance

Mount RushmoreThe stimulus packages that have regularly boosted asset prices each time the Federal Reserve rolled out a quantitative easing programme look set to continue with the victory of president Barack Obama. Markets responded positively to Obama’s re-election mainly because it means that the Federal Reserve has a clear mandate to continue its aggressive monetary easing policy unchecked, says Ted Scott, global strategy director at F&C Investments, a London-listed fund management company. If Mitt Romney had won, it is likely the threatened removal of the abundant liquidity stimulus would have given markets pause, Scott says. Dan Morris, global strategist at JP Morgan Asset Management, says stimulus will continue - but like many others, Morris sounds a note of caution about the broader economy. Beyond the US election, there are broader economic forces that will determine the path of equity and fixed income markets, say asset managers. Morris says the economy is unlikely to accelerate soon as the housing and labour markets recover only slowly. The fiscal cliff – an expiry of tax breaks, followed by tax increases and spending cuts at the end of this year – and the budget deficit need to be addressed. Cormac Weldon, head of US equities at Threadneedle Investments, says: “[Obama] has little choice but to address these challenges – as would a president Romney – by raising taxes and cutting spending.” But over the longer term, US equities will gain support from the fundamental strengths of the economy, he adds. Martin Reeves, manager of the High Income Trust at Legal & General Investments, says the fiscal cliff “may turn out to be just a distraction”. Although markets should recover fairly quickly if a short-term resolution is found quickly, tough negotiations could lead to a drop in equity markets. Looking even further ahead, Mike Turner, head of global strategy and asset allocation at Aberdeen Asset Management, says the global economy needs the US to recover. ©2012 funds europe

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