Taper tantrum not in the cards
A strident taper tantrum similar to the one experienced in 2013 is not anticipated despite the US Federal Reserve looking to taper asset purchases before any subsequent interest rate hikes, according to American Century Investments.
The fund manager’s latest investment outlook said markets might react to the tapering with short-term volatility but a taper tantrum was not anticipated.
American Century said it expected higher inflation and yield expectations to weigh on corporate earnings growth without making specific calls on inflation or interest rates.
“The effects of higher raw materials and labour costs on general operating expenses could also dampen earnings. In this environment, we continue to look for companies with the pricing power to sustain earnings growth,” it said.
The fund manager said as developed markets growth moderated and the COVID-19 recovery broadened, emerging markets had more room for relative growth fuelled by vaccine-related optimism.
“Northern Asia performed well during early stages of the pandemic, aided by the concentration of technology, internet and e-commerce stocks. Stay-at-home orders, mobility restrictions and lockdowns supported growth in these industries,” the outlook said.
“We expect this trend to continue throughout the remainder of the year, given that many of these economies remain below pre-pandemic growth levels.”
It noted many IT and communication service stocks were volatile in the first half of 2021 as markets rotated away from pandemic beneficiaries to more cyclical firms.
“We continue to see a long runway for existing trends, including digitalisation, cloud-based computing and e-commerce,” American Century said.
“In our view, companies well-positioned to deliver on these secular trends remain attractive and should continue to support emerging markets.”
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