Despite an overreaction from the market, advisers should not be concerned about QE tapering, and should take it as an opportunity to reassess their clients’ asset allocations.
Equity markets fell drastically after the US Federal Reserve chairman Ben Bernanke announced QE3 may be tapered within the next 12 months. However, Clime Investment Committee chairman Paul Zwi says that this is merely the beginning of a post-GFC world.
“It’s like Ben Bernanke has provided the punch at a party and the party is going very merrily along and he decides it’s time to start ending the party so he’s withdrawing the punch. The stimulus is being withdrawn because conditions are strong enough to not require it any longer.”
While Zwi says people shouldn’t be too fearful, QE tapering is an important issue for retiree clients that are planning for retirement, looking for a high rate of interest with as little risk as possible. He says advisers have to figure out how to position their clients to take advantage of a changing global investment environment, and this involves asking a few questions:
Should I ensure they have money in the share market?
Should I be positioned to take advantage of rising rates?
Should they sell any bond exposure in case bond yields start rising?
While he would not venture to tell advisers where to invest without knowing the personal circumstances of each client, Zwi says the key thing advisers need to do is to contemplate the asset allocation mix between equities, cash, bonds and property.
“They ought to be considering a post-QE world and how clients are best positioned for that environment. They ought to be thinking in the next two, three, four years economic and financial conditions will start normalising and a post GFC world is now in sight. They really ought to be developing strategies to accommodate that.”
Another market concern that the Clime group is more optimistic about is the slowing of China.
“We just think the market’s overreacted to the China slowdown,” says Zwi. “We think the reasons behind China’s growth over the long term are quite resilient. The main driver of that is urbanisation and industrialisation. Even if China does slow down we still think it’ll be growing at 6-7% which is sufficient to still be a very large consumer of our commodity exports.”
Zwi has had more than 20 years’ experience in fund management and economic history. He says that while some market movements echo past experiences, it’s always slightly different.
“It’s an exciting period because it’s a turning point, and turning points are fraught with risk, but also ripe with opportunity.”
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