The US Federal Reserve’s shift from Quantitative Easing (QE) to Quantitative Tightening (QT) could provide a tailwind for listed global banks, industrials and cyclical stocks, Shane Oliver, AMP Capital head of Investment Strategy and Chief Economist, says.
The shift from the US Fed pumping money into the economy under QE, effectively sucking money out again under QT (article here)
does have implications for investors, Oliver highlights.
The most obvious implication is for bond investors, Oliver notes.
“Just as QE led to a decline in bond yields, QT will lead to a rising of bond yields and that will flow globally. That means more constraints on bond returns,” he says.
When it comes to share markets, the story is mainly positive because the policy shift means the US economy is stronger which is in turn driving profits which ultimately will support share markets, Oliver notes.
Key beneficiaries during QE have been “yield plays” like Real Estate Investment Trusts and the “growth parts of the share market” like technology stocks, he says.
“Going forward key beneficiaries of this change will be financials like global banks, more industrial and cyclical parts of the share market.”
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