MUMBAI, Aug 12 - Based on expectations that U.S. inflation will be risky and that the Federal Reserve will publicly share its plans to taper asset purchases, major global fund managers say they remain invested in transitory assets.
Fond managers interviewed on the Reuters Global Markets Forum since last week appeared to concur that the Fed may give more weight to employment data than inflation, but held divergent views on when and how the Fed would announce a taper.
Mark Haefele was positioning for some inflation, chief investment officer UBS Global Wealth Management said.
It's a little bit of a barbell in the sense that we don't think inflation is going to get out of hand, he added.
Haefele is betting on the reflation trade - trades that outperform during periods of quick economic growth - as the world works through the delta variant of the coronavirus. His investment picks include Japanese stocks and energy and financial stocks and Energy and Financial Equities.
Rahul Chaddha, the global CIO at Mirae Asset Global Investments, reckoned that deflation would likely be a larger concern for the Fed in the medium-term.
Data on Wednesday hinted that inflation may have peaked, which could support the Fed's contention that the surge in prices will be temporary.
Chaddha will be happy to live with periods of high inflation to jumpstart the investment cycle, Fed said.
Chaddha believes there could be some sell-off in cyclically geared stocks as bond yields rise in the near term, but reflation trades would gain their appeal in the medium-term as the Fed caps yields and stays behind the curve.
The biggest concerns for fund managers were around the Delta variant and the effect of a slowing China.
We saw what the impact of the slowdown in Chinese growth can have in 2016 on the rest of the world, said Justin Onuekwusi, head of retail multi-asset funds at Legal General Investment Management. Haefele did not expect tremendous clarity from the Fed anytime soon and said average inflation targeting gave the U.S. central bank more room to be lenient.
The AIA group CIO Jerome Powell expects the Fed to announce resumed by November or December of this year, based on Chair Mark Konyn's remarks about the underlying strength of the labour market.
The Fed is facing a sort of 'hard deadline' in 2021 to announce tapering, Konyn said.
A sharp decline in the U.S. fiscal deficit could reduce the volume of Treasury securities' issuance, which could lead to market volatility if Fed continues bond-buying at its current levels, Konyn added.
Jim Leaviss, CIO of public fixed income at M&G Investments, expects the Fed to announce its taper plan during its live September meeting sooner and then end asset purchases by November this year. He reduced the average maturity, or duration, of his holdings of U.S. bonds.