With central banks continuing to dominate the headlines – and investors’ thoughts – quantitative easing (QE) looks set tighten its grip on markets, suggests a senior executive at UBS Global Asset Management.
The US may have ended its bond-buying programme last year, but Japan is continuing with aggressive stimulus measures and the European Central Bank is widely expected to launch a QE package this week.
And the likes of Japan and China are likely to continue to ease monetary policy, said Curt Custard, head of global investment solutions (GIS) at UBS Global Asset Management. “Central bankers seem to have got over the mental wall of QE, so we would expect to see more of it rather than less.”
Of course, monetary authorities will move at different paces. Hence monetary policy divergence will be a theme this year, and how investors react will be interesting, said Chicago-based Custard during a trip to Asia last week. “Hedge funds may do well at exploiting this volatility because they are nimble, others will want to hide from it.”
And while the likes of the Bank of England has been towards keeping the market informed via ‘forward guidance’, sovereign purse-holders still have the power to shock, as the Swiss National Bank showed on Friday.
Asked what effect the SNB’s move to abandon its currency cap will have on Asian markets and assets, Custard said: “We’ve been trying to wrestle with that.”
The knock-on effect from a macroeconomic perspective will not be huge, he argued. Switzerland has relatively modest GDP, and a rate hike would probably be bad for Swiss exports, as it would spark currency appreciation. But it won’t have a major effect on the global economy as a whole.
It will, however, boost the view of the Swiss franc as a safe haven, luring more flows – including from Asian investors – into Swiss francs and Swiss bonds, Custard said.
“For global investors, the Swiss National Bank did something very unusual and caught the world by surprise,” he noted. “[US Federal Reserve chairman Alan] Greenspan and Mark Carney, chairman of the Bank of England, have gone to great lengths to not surprise markets.
“The SNB has done the opposite, but if you want to give up a peg, you have to do it immediately and cannot guide the market, otherwise the peg is gone when you start guiding.”
Turning to another big macro issue for investors – oil prices, which have more than halved since last June – Custard said he saw very few reasons for the cost of crude to rise in the next six months or so.
Countries such as Iraq and Russia were still producing at record volumes irrespective of the price of energy, he noted. “As higher-cost production comes offline and hedges roll off, production will shrink, but that will take some time.”
Custard’s GIS team in Asia has doubled in size to 12 in the past year, as reported, and is the fastest growing part of the division globally. It will probably grow further to 15 or 16 this year, he noted, as demand for multi-asset investing grows.
“We are looking to hire an additional two or three people – ideally locally, but we need local and global expertise,” he said. He is looking for staff with asset-allocation expertise that can feed Asia research into the global local teams.
But in Asia people with experience in multi-asset are scarce, and those who are may be overpriced. So we may have to bring some people in from overseas who want to stay in the region for a while.