Central bank stimulus is now driving asset values around the world, said BNY Mellon senior fixed-income market strategist Marvin Loh during a presentation hosted by the CFA Society of Calgary.
Those policies are “probably here to stay, with central bank intervention as one of the main monetary tools. An unprecedented amount of money is making its way into the financial system,” says Loh, who expects global balance sheets to continue growing.
The largest central bank playing this game has been the Federal Reserve, which won’t change its stance soon. In the U.S. and Canada, growth is below potential, he notes, and the Eurozone is expected to be in recession again this year.
“Central bankers are going to be all in because they are guarding against deflation. And once you go down this route, it’s very hard to stop until the most aggressive, biggest player also pulls out.”
In Canada, with a new central banker coming in, “The real question is whether he will continue with a more neutral to tightening stance, which is the exact opposite of what everyone else is doing in the world.”
Many investors worry about the prospect of significantly higher interest rates, but Loh says they will remain where they are. “We’re probably in coupon-cutting mode in the bond market.”
Read: Central bank rates and retirement (an editorial from 2007) for more on how future rising rates could affect retirement planning
Ten-year U.S. Treasury bonds now yield 2.02%, he adds, and rates will remain anchored between 1.8% and 2.25%.
“If bonds remain range-bound, it dispels the great rotation concern that we are going to have a lot of selling off of bonds to buy stocks,” Loh says. “The concept that everyone is going to flee bonds is a little overblown — the evidence doesn’t suggest it.”
Regardless, investors need to look globally for yield, he says.
“Look for currencies that are stable and can hold value,” he says. These include the Swiss franc, the Canadian dollar and some of the Nordic currencies, such as the Danish krone or Swedish krona.
In addition, look at emerging-market opportunities, Loh says. “Depending on risk tolerance, buy emerging market investments in the local currency [rather than in] U.S. dollars. If you buy in the local currency and if the currency appreciates, you are getting a boosted return.”