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Jun 07, 2012, 07.46 PM IST
After yesterday's ECB's meeting which did not talk of any further LTRO, Geoff Lewis, ED, JPMorgan Asset Management says, the central bank is more dovish in its strategy now but it doesn't want to continue underrating markets.
After yesterday’s European Central Bank’s (ECB) meeting which did not talk of any further LTRO, Geoff Lewis, executive director, JPMorgan Asset Management says, the central bank is more dovish in its strategy now but it doesn’t want to continue underrating markets.
In the current market environment, he recommends investors to have a diversified portfolio. Finding no asset class cheap right now, Lewis says, one can get good returns in the long-run.
Below is an edited transcript of his interview. Watch the accompanying video for more.
Q: Global markets have been rallying for the past two days on the hopes of some monetary easing. What is your expectation from Fed? Are we likely to hear anything from Ben Bernanake which will let the rally continue in the global markets?
A: Markets have become very dependent, they are always looking for another fix from the central banks but in spite of some dovish voices from the Fed, there are also a lot of Fed governors who believe that enough is being done with the US long-term and short-term interest rates which are at absolute at record lows, what more can we expect.
I would think that Ben Bernanke would not be averse to another QE exercise but we haven’t reached that threshold yet. I think he will prefer to keep his ammunition dry at this point; after all we have got a fairly bumpy outlook ahead and the so called US fiscal cliff to negotiate.
Q: In the short-term, we did see all asset markets move up in the past 72 hours. Is that just a movement from oversold territory or is there any real juice in this expectation of easing by the two big central banks?
A: There is more expectation probably that the ECB is now more dovish in its strategy and that is definitely the case but even there markets have been very driven by policy rumours, by innuendos by what a certain minister said this day compared to what he said yesterday. To my mind, this is pretty much short-term noise.
As you have seen, markets have been very heavily oversold. It looks to me like the ECB it also has a highest threshold. It also doesn’t believe enough is being done in terms of institutional reforms, in terms of addressing the real causes of the euro zone crisis. Again, it doesn’t want to keep underwriting markets by continuously flooding the system with liquidity when the politicians are avoiding the hard choices.
Q: In the next three months, which asset class are you most bullish on to give you returns?
A: The important thing to stress is that in these markets you need to stay very diversified and you need to be invested across a broad range of alternative assets. We would be looking for quality high dividend yield pay in equities, we would not be dramatically overweight equities in fact we would be rather underweight and we would be looking to increase returns with positions in high yields debt in emerging market debt. After the correction they are looking attractive again.
So a very broadly diversified portfolio because no asset class stands out as conspicuously cheap in these markets and yet there are some good returns available to an investor with a longer-term horizon. So even with equity markets we are now at quite attractive entry levels for somebody who can afford to ride out the shorter-term volatility.
Q: Crude has seen the sharpest cut in this general risk-off that we saw over the past several weeks. Is it going back to USD 125 per barrel levels or do you think that it was anyway trading at premium and now even along with the risk-on, Brent is likely to be closer to USD 100 per barrel?
A: I think one has to be circumspect here because it is very difficult to predict short-term movements in oil prices, a lot of empirical research show that. I am cautiously optimistic. I believe that the recently elevated levels have had a lot to do with tensions in the Middle East. It looks as if there is now some shift in Iran’s position, it is looking like the negotiator now, a little bit more favourable so the political temperature has cooled a bit.
Of course, Middle East geopolitics has always got the capacity to cause a supply side shock to the oil price but in terms of the physical situation, global oil demand balance looks in favour of lower prices at this point, the global growth coming down and with quite high inventories. I am quite hopeful that falling oil prices will provide something of a tailwind to the global economy going forward from this point but of course it is very difficult to predict the Middle East politics.
Tags: global markets, European Central Bank, JPMorgan Asset Management, Geoff Lewis, Ben Bernanke, asset markets
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