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The ‘safety blanket’ is gone, now what?

Question mark, rope, businessman

With easing monetary policy around the world and the US turning “that tap off” altogether, investors should reassess the risk they’re taking, an investment manager has said.

“Broadly speaking, monetary policy is being very easy globally,” Western Asset Management investment manager Anthony Kirkham told Nest Egg.

He said this has helped all asset classes, leading to a position where “the US is already turning that tap off” while Europe also ponders a similar move.

“It's a different environment, in that markets sort of work well because they’ve had that safety blanket,” Mr Kirkham said.

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He said that "safety blanket" is either no longer there for some countries, or is being removed in others. 

“So in that environment, we're going to see more volatility and markets are certainly reacting to some of these events because the support is no longer going to be there like it was,” Mr Kirkham said.

He said the changing landscape may lead to investors feeling challenged

“That [response] is fair enough and in that environment, I think you need to assess what risk you are taking and whether it's sensible to be guns-a-blazing on the risk front or be a bit more mindful of the fact that we are coming into a new period that is certainly going to be more volatile and therefore a more balanced portfolio is certainly required,” Mr Kirkham said.

For fixed income investors, navigating this changing macroeconomic and geopolitical landscape comes down to breaking trends and movements down to short- or medium-term events.

“The key as a long-term fundamental investor is it’s important to get that broader view right,” Mr Kirkham said.

“So that's where it will impact things like growth over medium to long-term, which is key for decision making, obviously inflation, how that's going to be impacted by the pressures, and therefore will determine the direction certainly of the longer dated bonds in the market.

“That's where the connection starts.”

The ‘safety blanket’ is gone, now what?
Question mark, rope, businessman
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