Too early to re-enter emerging markets

Central banks could continue pumping money into the economy for a further two decades, inflation is set to pick up in New Zealand and it’s still too early to re-enter emerging markets.

Friday, June 27th 2014, 6:19AM

These were some of the conclusions drawn at a recent investment and portfolio construction conference.

According to financial advisers and experts at the Perfecting Investment Portfolios Conference, the current cycle of quantitative easing could easily go on for another 5-10 years with some experts predicting loose monetary policy for even longer. The majority of delegates were convinced that QE had stabilised the financial system, however, they were mixed as to whether rates in the US would increase this year.

With global central bankers focused on avoiding a near-term deflationary environment at any cost, speakers Chris Daily, portfolio manager at Tribeca Investment Partners and Mark Thomas, chief executive and chief investment officer at van Eyk Research urged investors to think like a central banker and remain invested in growth assets.

“Central bankers are focused on reflating the economy to avoid deflation, in which case excessive liquidity is sustainable and investors should stay in equities for longer even though valuations may appear stretched,” Thomas said.

“QE seems to have a shelf space much longer than most are thinking. While there is talk about slowing QE in the US, it’s unlikely that they will remove it until deleveraging is more pronounced in the private sector. Europe has just started and Japan has no other option.”

The Annual Perfecting Investment Portfolios Conference, which is hosted by The Investment Store and Heathcote Investment Partners, focused on two key themes this year: “Bathing in the afterglow of central bank intervention” and “The déjà vu of emerging markets”.

These themes were developed by Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research, who opened the conference. He was joined by other prominent speakers including Jonathan Ramsay, head of strategic research and consulting at van Eyk Research and Chris Douglas, co-head of fund research at Morningstar Australasia.

Douglas, in his presentation on emerging markets, said sentiment around emerging markets was mixed with US investors buying emerging market equities while Asian and European investors were exiting the region.

Heathcote Investment Partners director Clayton Coplestone said: “We were able to stress-test conventional industry thinking, in order to deliver better outcomes for investors."

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