Forget the trade war; investors should focus on central banks, Bank of America strategist says
- World’s monetary base could contract by about 5 per cent by the end of this year
- Central banks’ quantitative easing could negatively affect asset prices, Ajay Kapur says
Ajay Kapur is convinced that too much attention is being paid to the trade war between the US and China. Instead, the head of Asia-Pacific and global emerging markets strategy at Bank of America Merrill Lynch says the focus should be on the US Federal Reserve and other central banks and their planned reductions in bond buying programmes known as quantitative easing.
“What we’re waiting for is the Fed and the [European Central Bank] to recognise there is very little inflationary pressure,” Kapur said. “Contracting their balance [sheets] is going to be really negative for asset prices.”
The world’s monetary base is currently shrinking by about 2 per cent year on year. It’s a very unusual event. Whenever it occurs, you’re normally in a recession,” he said.
The Fed would like to shrink its balance sheet by US$50 billion a month, which would cause the world’s monetary base to contract by about 5 per cent by the end of this year, Kapur said.
At the same time, the ECB is preparing to end its bond buying programme this year.