All eyes are once again on the US Federal Reserve and Janet Yellen. Most people will be closely hearing the statement coming out from the Fed for changes. But Geoff Lewis, ED, JPMorgan Asset Management believes Yellen will not want to make any major changes at this
“As we start to get better data and the high frequency indicators point that way then the Fed is likely to have quite a high threshold to change in that policy, they will continue with tapering,” he told CNBC-TV18.
The Bank of Japan unanimously voted against any changes in key policy rates today, as was expected by Lewis. It kept to its key policy of boosting monetary base by ¥60-70 trillion/year. He believes BoJ will only act if the Japanese economy weakens and if they see that inflation is starting to fall back. Hence, he was not expecting much from BoJ today.
Among asset classes in India, he likes equities the most. India infact is one of his preferred markets in the emerging markets space.
Latha: What do you expect to hear from the Fed today? What part of the statement will be important?
\A: I think people will be passing the statement very carefully and looking for any change in the wording. I think Yellen will not want to make major changes at this point. I think she wants to stretch continuity and so far things do not warrant any major changes to the statements and in fact as the economy starts to normalize, as we start to get better data coming and high frequency indicators point that way then the Fed is likely to have quite a high threshold to change in that policy, they will continue with tapering, the market will be used to that and it will be nice to get away from this situation where we are hanging on Fed’s every word. To me that is not healthy for the market.
Latha: There is another central banker who will be speaking and acting, Bank of Japan (BoJ). Will you watch out for anything they say or do?
A: I think the Bank of Japan wants to keep their powder dry, they are wanting to assess the impact of the consumption tax hike. We have seen consumption tax hike coming through pretty fully in terms of prices. We have the Tokyo CPI out, so inflation is definitely picking up in Japan and BoJ is bearish for additional monetary easing, at this point also it is higher than the market have been anticipating so. I think further real action from BoJ will only come if they see the Japanese economy weakening and if they see that inflation is starting to fall back, so nothing much from the BoJ today.
Sonia: What is your asset allocation strategy is for 2014 and how high does India feature on your list?
A: We still like equities the most but investors should be realistic; they should be overweight equities but fairly moderately so. Bonds have surprised us. I think what happened in the first quarter was a good reminder of the need for diverse vacation. We would still prefer high yield, global high yield in the credit space because we have got emerging market equities where neutral to slightly underweight on a tactical basis but preferring Asia over Latin America and within Asia, India is still one of our preferred markets.
Latha: What is your sense about what Yellan might hint towards interest rates? Will that be something we have to watch out for in the statement?
A: I do not think she wants to encourage markets to get excited about interest rates. The market was trying to get ahead of the Fed last year – pushing, bringing forward the timing of the first rate hike since then the Fed has managed to communicate its intentions more effectively and the forward rates are currently looking for the first increase run by the middle of 2015, the Fed will be happy with that. It is after all six months after the ending of quantitative easing (QE) tapering which is what Yellan had said in one of her first public announcements.