Allocations to risk assets such as shares can be of benefit to investors even during economic cycles like the one being experienced now characterised by rising interest rates, a global fund manager has said.
“As we enter a rate-hiking cycle, if we look back in history, they have not been negative for risk assets at all,” JP Morgan Asset Management global market strategist Kerry Craig said.
However, Craig did point out a typical market characteristic investors must be conscious of when interest rates increase.
“What has been apparent in this environment is really thinking about the fact you get a lot more volatility and uncertainty around when the central banks start their rate-hiking cycles,” he warned.
According to Craig, investors can expect markets to settle down again around 12 months after central banks have committed to increasing interest rates.
“[At this time] generally markets have a better idea about where the [United States] Federal Reserve and central banks are heading, a better idea about the outlook for the economy and also the fact that it’s usually meaning the economy is looking pretty good,” he noted.
“So we do think it’s a case of thinking about that concept today as we see that volatility and uncertainty in markets.”
With regard to the type of stocks investors should in the main be favouring now, he cited quality shares with a heavier weighting towards US equities.
“We also think there is scope to barbell that thinking about the emerging world a little bit more. There are challenges there, [such as] what’s happening in China with the prospect of its growth outlook with the lockdowns that are happening at the moment, as well as issues around the property market, but what’s offsetting that is the policy response we’re seeing coming through both on the fiscal and monetary side,” he said.
“We also look at Asian markets more broadly starting to reopen, increasing domestic demand, all coming through there and offsetting some of the drags of institutional debt from higher rates.”
According to Craig, this barbell approach will provide investors with the quality and safety of the US market and the growth offered by emerging markets.
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