Monetary stimulus programs will soon dry up as central banks' reserves are declining and this will affect companies current business models, says Japanese equity star Ernst Glanzmann of Swiss & Global Asset Management.
Using the World Dollar Base, an indicator which consists of the US monetary base and US treasury securities held by all central banks, Euro Stars AAA-rated Glanzmann said the second part of this measure pointed to problems ahead.
‘Today the world’s central banks money base is declining,’ said Glanzmann, who runs the Julius Baer EF Japan fund. ‘That means major central banks are rather tight.’
‘This sort of a scenario means that in two to three years from now we are going to have a challenging world economic environment.’
The MSCI World index’s growth rate lags the World Dollar Base by around 30 months which makes it a useful macro indicator and for Glanzmann, it has the potential to move global equity markets.
While his Julius Baer Japan Equity fund is focused on the Japanese market, many of his leading stocks get their revenues from other developed countries and these changes will affect his own strategy.
‘This is a little grey cloud for me, and means over the next year or so we might need to recheck company business models to see whether they can face a more challenging environment or not.’
‘The one thing I really try to avoid in the fund is to have a total loss in my portfolio, so a bankruptcy case.’
Many companies are hoping for more stimulus programs but Glanzmann says the money is simply running out so we will soon see their business strategies put to the test.
‘It takes around three years till these stimulus provided by the central banks feed through the economic system.’
‘The Federal Reserve is currently less expansionary following its recent stimulus programs and even the Asian banks are less aggressive in purchasing US securities.’
Over the past three years the Julius Baer EF Japan fund has lost 3.6% while its custom benchmark JB Japan Stock Fund index, has fallen 12.64%.