Opinion: Normalising monetary policy could be a major car crash for investors
Day of reckoning is fast approaching, especially for global stock investors pumping new money into European equity funds, ramped up by the spectacle of Germany’s economic ‘miracle’
Global investors have been jumping through hoops in recent years, many of them ringed with fire.
Even though markets have had to run the gauntlet of some very serious risk events, investor confidence has transcended the worst thrown at it. To prove it, stock market indices are running at all-time highs.
The global financial crisis has been and gone, Europe has survived intact and global policymakers seem cautiously optimistic that the world economy is back on the mend. Global trade flows are bouncing back. So what is there to beef about?
If stock markets start banging up against future reality checks, there may be a good reason for it. The mother of all risk factors, which still needs to be bridged, is the future return to “normal” monetary policy. The global economy has been living in a dream world of cheap and easy money for far too long.
The world has much to be grateful for the major central banks pulling out the stops to get global recovery jump-started after the 2008 crash.
Zero interest rates and a massive glut of quantitative easing (QE) did a fine job cranking up economic revival, but too much of a good thing also causes problems. When the world starts running on empty is when investors should begin to worry.