How to discuss ‘timing the market’ with clients
PIMCO has discussed how advisers can have conversations with clients who are eager to “time” their re-entry back into markets with possible rate cuts.
The European Central Bank, Bank of England and US Federal Reserve are all expected to make rate cuts by the end of the year, although it could be longer for the Reserve Bank of Australia which is still considering another potential hike.
Rates have been on pause at 4.35 per cent in Australia since November 2023.
Haydn Scott, account manager at fixed income giant PIMCO, said the firm is increasingly seeing clients ask about timing the market with these central bank actions.
Responding, Adam Bowe, PIMCO portfolio manager and chair of the Asia-Pacific portfolio committee, said advisers should flag to clients asking this question that the easing cycle is already underway.
“I would say to them, and it’s a common theme, if you are waiting for the global easing cycle to start then it has started. The big news recently is that two of the big central banks, Canada and Europe, started easing policy. Earlier in the year, we’ve already had Switzerland and Sweden ease policy.
“So four developed market central banks have already started cutting rates. When we look around the world, we think there are other countries like Australia, New Zealand and the UK who will be starting to cut rates by the end of the year.
“If you are in that camp that you are waiting for the easing cycle to start, the good news from recent events is that it has started.”
He recommended advisers suggest adding more duration or interest rate risk to a portfolio which is how he is positioning the PIMCO portfolios.
“Australia, New Zealand and the UK haven’t started easing rates yet. Interest rates are still elevated, but we’re expecting them to start easing policy by the end of the year. And they’re the type of markets that we like owning duration.
“So you should be owning materially more interest rate risk than you did, say two years ago. And if you’re waiting for the central bank convoy to start easing rates, recent events suggest it’s started. Now’s your chance.”
AUTHOR
Laura Dew
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