The Bank of America released a survey indicating that institutional US investors reallocate their money from government bonds to equities.
This is the first step on the reversion towards a more "normal" interest level. Investors expect interest rates to rise and abandon (fixed rate) bonds so they don't get stuck with the low interest coupons. They rush into equities as alternative assets.
When bond interest levels have gone up according to investors expectation the move will reverse. Now bonds will get more popular again until a balance is established.
Of course FED's actions will have a strong influence:
a) FED does nothing or FED slowly decreases asset purchases: Scenario as above
b) FED decides to stop purchases faster then assumed: More rapid and stronger rush to equity.
c) FED decides to increase asset purchases: Increased popularity of bonds, since interest levels might decline even further in the future.
In my opinion alternative a) seems to be the most likely outcome, since this also includes a vague statement without a decision about future actions.
For Europe the situation is entirely different. The ECB seems willing to escalate the situation in order to force banks into lending more money. Yet the EUR is getting stronger, investors seem to doubt the willingness or ability of ECB to further cut interest rates.
Edit1: Aswath Damodaran posted a very interesting research opionion on the power of the FED and the perception of it by investors. Highly recommended as always!
Edit2: Harald Preißler Chief-Economist of Bantleon (investment bank) seems to have the same opinion: Handelsblatt (German only)
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