Richard Buxton: don't get carried away

published 17 March 2017

836-guru-1200 — Richard Buxton: markets on the road to normalisation

Fund manager Richard Buxton of Old Mutual Global Investors doesn't think much of today's monetary policy, which has created a "wholly artificial financial environment". Money printing via quantitative easing (QE) has sent "bond pricesever higher... distorting company valuations". High-yielding shares (or "bond proxies") in particular "reign supreme", while low interest rates have damaged banks' profitability, and "robbed" savers. Some blue-chip companies have even managed "to issue debt at negative yields" (ie, they are effectively being paid to borrow).

But things are about to change. Rising inflation has set the US "on the path to interest-rate normalisation". Now bond yields are rising (and bond prices thus falling), "restoring bank profitability, and creating an environment in which economically sensitive or cyclical stocks can thrive". Value stocks are "replacing growth stocks" as popular choices for investors, while promises of more government spending "in the form of building bridges, mending railroads, laying down new highways, will stir up much needed animal spirits' and encourage investment".

But don't get "too carried away", Buxton warns. US President Donald Trump's infrastructure plans are unlikely to become law until 2018. Also, "protectionism under the Trump administration seems certain", with a focus "on those countries with which America has the biggest trade deficit, namely Mexico and China". Still, Buxton "would welcome a healthy correction, a year where equities end around 5%-10% down instead of riding on the endless crest of the central-bank wave". When it comes to money printing and QE, it's time to "end the madness and return to normality".

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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