QE has failed to drive global growth, says Allianz Global CIO 30 November 2015

QE has failed to drive global growth, says Allianz Global CIO


Central banks' monetary policy measures have failed in their mission to reinstate normal levels of global growth, according to Andreas Utermann, global CIO at Allianz Global Investors.

Utermann, who also runs the Allianz Global Fundamental Strategy fund, said the principle reason behind it is the debt, which hasn’t been deleveraged sufficiently.

‘Debt levels today are not lower than they were at the start of the financial crisis,’ said Utermann at a roundtable discussion.   

He said QE policies had put the financial system on a strong footing but continued to fail to reduce the level of debt and pick up economic growth. He also added that global imbalances are currently preventing the world economy from growing at a more rapid pace.

‘There are certain economies that are characterized by an access savings dynamic,’ said Utermann. ‘China is one of them, as it changed its economy towards more consumption and is becoming more imports and less exports driven.’

He said a greater emphasis on a domestic demand in eurozone and China is needed to restore global imbalances. In turn this will allow some of the countries currently in deficit, such as the UK, the United States and Australia, to plug these shortfalls.

Utermann said another big theme for 2016 is re-leveraging of the emerging markets and de-leveraging of the developed markets. He said, over the next few quarters, a great emphasis for the Federal Reserve will be the move to a normalised interest rates policy.

‘We were very convinced that US would raise interest rates in September because markets would react negatively. It didn't happen it actually came true that the markets reacted negatively,’ said Utermann. ‘Now we think the interest rate hike will happen in the December window.’

In terms of asset markets, the fund manager considers long-term bonds to be overvalued and expects their negative returns to increase. Utermann said equity valuations are currently mixed, with stocks being cheaper in Europe and more expensive in the US.

However, Utermann added, among traditional asset classes he sees equities and high-yield as the only way to gain value and a good protection relative to inflation. ‘The only asset class that looks reasonably okay of the major allocations is equities. This is with a dividend yield of 3 or 4% being found in areas such the financial sector.'

Utermann said a big theme for his clients is to harvest risk premium outside of the key main asset classes, such as equities and fixed income. He said now is the time to assess much longer-term equity opportunities, such as those with a time horizon of 20-30 years, and alternative strategies.