Be ‘Fed-ready’ ahead of December announcement

By Janice Roberts
Editor

Nigel Green - CEO deVere Group

South African fund managers should warm up for a very likely U.S. Federal Reserve interest rate hike in December and make the most of the opportunities it brings for their clients and investors. This is the advice of Nigel Green, CEO and founder of deVere Group.

He says fund managers and investors should ensure they are “Fed-ready” before mid-December, as it looks increasingly certain that the U.S. Federal Reserve will hike interest rates for the first time in nine years.

“Investors should be prepared to allocate cash to invest in stock markets. Whilst it is unlikely that we will see spectacular returns, there is no reason not to expect some steady growth. An experienced fund manager will be invaluable in selecting the right funds at the right time to take advantage of the opportunities.”

Stronger than expected U.S. employment data in October fuelled expectation that a move from near-zero rates will take place next month. The world’s largest economy added more than a quarter of a million jobs in October.

“The probability of a 2015 rate hike has been the source of much rumour and speculation for more than a year.

“But most of that is now over, thanks to the recent robust job numbers and a reported 2.5% increase in wage growth in the previous 12 months. We’re as confident as we can be that the Fed will tighten policy on 17 December 2015.

“Holding rates at near-zero is increasingly unjustifiable and it would be hard to think of a better time than now to raise them, given the economic situation. Plus a 0.25% rise now is a better way forward than having to raise rates higher and faster later.”

He continues: “No one can say for sure how the markets will react to what will be the first rate hike in almost a decade.

“However, I suspect that after the Fed’s cautious tone for so long, the markets will take a rate hike as positive evidence of the world’s de facto central bank’s confidence in the durability of the underlying U.S. and global economies.

“Should this consensus emerge in the investment community, which I believe it will, corporate earnings growth will be supported.”

Green says investors should therefore ensure they are “Fed-ready” before mid-December to capitalise on the likely upsides that will inevitably come along as a direct result of the Fed’s policy tightening.

 

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