The global economy has moved into a phase of weak growth and falling inflation but things probably need to get worse before policy makers take sufficient action to turn the business cycle back up again, according to Trevor Greetham, Portfolio Manager, Fidelity’s Multi Asset funds:
Speaking in a webcast this morning, Greetham revealed he moved underweight stocks and commodities over the last six weeks in favour of bonds and property as his Investment Clock model suggested the global economy is moving into the ‘Reflation’ phase of the cycle, a period of weak growth and falling inflation.
He commented: “Since the financial crisis hit five years ago we have been stuck in a period of short, boom/bust economic cycles with the upswings very much reliant on stimulus from central banks. It’s a time when diversification across a broad range of asset classes including government bonds and gold works extremely well. It is also a time where there are opportunities for tactical asset allocation.
“I am hopeful central banks will ease soon because inflation is dropping but the markets will probably need to pressure policy makers to act aggressively. In the meantime it makes sense to be defensive.”
Commenting on Europe and the US, Greetham said policy makers remained reluctant to take the action that is ultimately needed.
He said: “The euro area needs to turn itself into a kind of United States of Europe. There is strong political opposition to the changes that will be necessary both from core countries that don’t want to transfer funds to weaker areas and from peripheral countries that don’t want to give up control over their economies. It will take years with periodic moments of crisis forcing politicians to take decisions they do not want to take.
“In the end we need to see more sharing of burdens, by way of intervention, euro deposit insurance and common bond issuance, and we need more growth. Policy should aim to inflate the core, so inflate German wages, rather than deflate wages in the periphery worsening their debt crisis. You can get these countries more competitive by making Germany less competitive.
“On the economic policy front it is the United States of America that is getting it right and our equity exposure is titled heavily in their direction. The banks were recapitalised early, the Fed has been very supportive and the White House has opted to spread fiscal tightening over the medium to long term, against the advice of ratings agencies. And yet growth has been stronger, the housing market is showing signs of recovery and the US equity market keeps on outperforming.”
To listen to a replay of Trevor’s webcast, register for Fidelity’s webcast channel here: https://www.fidelity.co.uk/adviserproducts/audio-video/default.page
Tags: asset classes | asset funds | bond issuance | burdens | business cycle | central banks | common bond | core countries | deposit insurance | diversification | economic cycles | global economy | government bonds | moments of crisis | political opposition | portfolio manager | stimulus | stocks and commodities | tactical asset allocation | united states of europe