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Neil Woodford: Why I’m nervous over QE

Invesco Perpetual’s Neil Woodford

Invesco Perpetual’s Neil Woodford has reiterated his short-term caution on the markets, noting that loose monetary policy is keeping assets afloat while economic growth remains elusive.

In an update to investors, the manager of the £13.7bn Invesco Perpetual High Income and £10.3bn Invesco Perpetual Income funds said he is “a bit more cautious” – a phrase he has used for the past several months – in his near-term outlook.

“The rising tide of QE has lifted all ships, whether it is in bond markets or equity markets, and given that the fundamental economic backdrop isn’t really improving – and arguably is deteriorating – that makes me slightly more concerned,” the manager says.

Yield spreads have been compressed, government bond markets have been very strong and are trading at historically very low yields, and all equity markets have been inflated broadly by this volume of cash.

The markets’ reliance on ultra-loose central bank policy has been sharply brought into focus in recent weeks, after the suggestion that the Federal Reserve could look at slowing its $85bn-a-month QE programme led to a broad sell-off in the world’s stockmarkets.

The manager sees the eventual normalisation of monetary policy as starting in the US, but not for some time.

Woodford says: “Valuations have risen a long way. The challenge for markets will be in this transition phase from the extraordinary monetary policy that we have now, to a more normal monetary policy. I think this is a long way off in Europe and the UK and certainly a hell of a long way off in Japan.


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