Nearly half of 120 fund selectors who invest in funds of Pioneer Investments said they expect asset price bubbles to be the main effect of quantitative easing (QE).
QE, which has seen America’s Federal Reserve and the Bank of England purchase a large amount of bonds to stimulate economic growth, has kept rates low and given investors little choice but to chase higher yields in riskier assets.
Forty-seven per cent of the fund selectors at Pioneer’s client investment conference in Boston last week selected asset bubbles in a poll, while those who said that a return to stability and growth would result from QE were the second largest group with 17% of the vote.
The audience said these scenarios were more likely than QE resulting in either hyperinflation, decades of high taxes, accelerated growth, or more QE.
When asked what they felt central banks should focus their policy on, 49% said real economic growth should take priority and 23% favoured tackling unemployment.
Other choices offered were consumer price indices, asset price appreciation and financial stability.
The European Central Bank (ECB) policy mix for dealing with the Eurozone economy was described as “not very good” by Pioneer Investment’s chief investment officer, Giordano Lombardo – but he still sees potential in European equities.
“It is true that on a cyclical basis all the PMIs [purchasing managers indices] are going in the right direction, but the financial system is not working – finance has not gone to the general economy,” he said at the Pioneer conference.
The ECB has pumped cash into the European economy in recent years, but not through bond purchases. Instead, it has loaned money to banks, meaning the ECB has not technically employed QE.
Lombardo said Europe was still barely at the level of GDP seen in 2008, though there were large differences between member states of the EU, with Germany and France outpacing Italy and Spain.
Where positive drivers existed, he said asset managers had priced them in to many assets – but equities are the exception. “This is why we are still considering European equities as an asset class to favour in our asset allocation,” he said.
But Lombardo also said that unemployment rates in the Eurozone continued to be unacceptable.
He noted that there were big differences in consumer price indices between European member states, meaning that some were experiencing deflation. Lombardo was speaking a day before the ECB’s monetary policy meeting at which a surprise drop in consumer prices was noted and the possibility of a Eurozone QE programme was debated.
Pioneer’s 120 clients were from 20 countries and represented institutional and wholesale businesses. Funds Europe was the conference’s media partner.
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