12th February 2016
Policymakers are taking control of the problems in the global economy which means markets can stop panicking and investors can get greedy, according to Royal London Asset Management’s Trevor Greetham.
Greetham, head of multi-asset at Royal London Asset Management, believes ‘when policymakers start to panic, markets can stop panicking’, referring to Japanese moves to get a grip its economy.
‘We are seeing the first signs of policymaker panic in Japan with prime minister Abe holding an emergency meeting with Bank of Japan governor Kuroda. We are going to get a lot of new stimulus over the next few weeks and not just in Japan,’ he said.
‘I expect negative interest rates to be used more in Japan and in Europe and I expect this policy to increase bank lending and weaken currencies for the countries that pursue it.’
He said the central banks were not trying to prop up bank share prices with their policy but they are ‘taking actions to lower the cost of credit to the broad economy. If necessary they will coerce banks to raise more equity capital so they can fulfill their function’.
Despite the negative interest rates, there has been some strength in the yen and euro, which Greetham said is down to ‘the pricing out of Fed rate hike expectations; some is temporary and to do with risk aversion’.
‘In a market sell off money tends to flow away from high yielding carry currencies to low yielding funding currencies and this effect is dominating in the short term,’ he said.
Greetham admitted the asset management company started the year ‘moderately overweight equities and it has been painful’ but he believes that it will improve.
‘What we have seen has been a highly technical market with many forced sellers among oil-producing sovereign wealth funds and financial institutions protecting regulatory capital buffers,’ he said.
‘However, economic fundamentals in the large developed economies remain positive, unemployment rates are falling and consumers will benefit hugely from lower energy prices and loose monetary policy.
‘Our investor sentiment indicator is highly depressed for a sixth week. We expect markets to rally as policy makers deliver a range of easing measures over the month of March. In the meantime, as long term investors we have been buying equities into weakness, not selling. When others are fearful, we should be greedy.’