The quantitative easing (QE) policy being undertaken across the developed world's markets may create greater volatility for investors in the long run, with the "beggar thy neighbour" consequences leading to a possible market fracture.
In the four years since the QE policy was introduced, there have been non-traditional policy adjustments from the European Central Bank, the US Federal Reserve, the Bank of England, Bank of Japan and Swiss National Bank. In that time, the central banks' balance sheets have expanded by US$5 trillion, according to Threadneedle Investments head of foreign exchange Matthew Cobon.
While the initial aim of the first round of QE was to make a strong US dollar weaker, "history shows that since 2008 the dollar has moved broadly sideways" with market volatility levels "on a continuous declining trajectory", he said.
"The effects are more noticeable, however, against currencies or real assets where no supply adjustments are taking place," he said.
"Gold for example, has rallied 160 per cent since its 2008 lows, illustrating the true magnitude of debasement."
Cobon said so-called "currency wars" were also having a major impact on emerging market currencies, with countries like Brazil reporting increased levels of "interventionist rhetoric".
As real asset prices across the world increase, so too have those of commodities and food, resulting in social unrest and mass strikes across South Africa's mining industry.
Events like these have forced the market to reassess some of the benign outcomes priced by financial markets, according to Cobon.
"QE is perhaps the most regressive of economic policies, supporting the rich developed market stock portfolios whilst taxing the cost of living of the poorest workers in countries whose currency and commodity prices are inexorably rising," he said.
"What seems likely is that whilst QE may successfully deliver us from the threat of deflation, the risks associated with expanding and broadening this aggressive global monetary action mutate, from economic to social and political."
