About the right amount of ‘dovishness’ seems to be the initial verdict from market commentators pronouncing on what had been billed as the biggest event in financial markets since the collapse of Lehman Brothers.
The latest Henderson Global Dividend index shows an increasing polarisation between emerging and developed markets, reflecting in particular the contrasting fortunes of the US and China.
If you had invested all your cash in dollars as a euro-based investor this year, you would have earned a better return than if you had emulated the MSCI World. Moreover, equity returns seem to have become completely tied to exchange rate movements.
Fund manager sentiment towards US equities had been negative for much of this year, with most asset management companies expecting a negative return over the next 12 months. But their outlook has brightened in October. Fund selectors have also started to be more constructive about the asset class.
In holding interest rates at rock bottom this week, the Federal Reserve has set a dangerous precedent which may come back to haunt it, and the global economy.
The US Federal Reserve’s decision to hold interest rates in the 0-0.25% target range was met with muted response by investors, not surprised by the dovish tone.
Both fund selectors and fund managers have been bearish about US equities for quite a while, against a backdrop of the Fed planning to raise rates, possibly as early as this week. Now, Joachim Klement, chief investment officer of the Swiss fund consultancy Wellershoff & Partners, has provided a statistical back-up for their pessimism.
Return expectations from US equities among asset management companies are at a post-financial crisis low. EM equities may look cheap after last week’s correction, but asset managers have their reasons to stay sceptical.
European investors again added to their US equity allocation in July after a 6-month pause. Net inflows amounted to €2.7bn, the largest since February 2014.
China’s shadow over global markets is pushing a US interest rate rise to December, and unless it relinquishes its grip the wait could go on even longer.