Henderson head of retail fixed income John Pattullo says volatility will persist in the markets with shorter market cycles causing “containable landmines”.
He says the last few months have seen markets change direction quickly as they try to determine whether we are entering a deflationary or inflationary environment.
He says: “The Vix volatility index has continued to thrash around much more than it has in recent years and we expect the economic cycle to be shor-ter than it has been historically due to greater imbalances across the globe.”
Pattullo says this is where the industry will have to deal with isolated problems as these shorter cycles will see small pockets of volatility.
He says: “We think we are going to see volatility persist, with containable landmines. These pockets may be specific to geographies and industry. We have already seen this geographically with Dubai, Greece and Ireland.
“We are still in a recovery cycle and we will continue to see this. The European stability fund is an example of how these pockets of concerns are being contained as billions of pounds are made available to support the sovereign bonds of these countries.”
Pattullo says those who agree with this view could probably add risk to their portfolios in the view that others will be selling assets.
Alliance Trust head of fixed income Rod Davidson says: “We are still cautious, particularly in the high-yield market. There is still a risk that the likes of Greece will have to restructure their debt so we will still have to be careful.”