Is Fed tapering really a risk?
Risk assets wobbled and stock market volatility jumped as Fed meeting minutes showed most policymakers want to start tapering bond purchases this year. Should investors be worried? While the minutes surprised markets, given prior expectations of an early 2022 tapering start, we do not see a slightly earlier
tapering imparting a lasting drag on risk assets.
Equities: European companies significantly beat Q2 earnings expectations, leading to upward revisions of H2 earnings estimates. This supports our preference for the region’s equity market.
Bonds: We believe Asian High Yield USD bonds are pricing in excessively high default risk. Hence, we view the bonds as attractive, given the risk-reward balance.
FX: We expect GBP/AUD to rise towards 1.94, and then to 2.00, amid widening economic and policy fundamentals and supportive technical indicators.