Wed, Dec 16, 2015 - Page 13 News List

‘Post-beta’ period will need active investment: Allianz

By Ted Chen  /  Staff reporter

Allianz Global Investors Taiwan Ltd (德盛安聯證券投資信託) yesterday said that reaping profits from the Taiwanese market is expected to become more difficult next year, as expected interest rate hikes in the US are to tighten global liquidity.

Next year, the world will be entering the “post-beta” period, when investment gains might no longer be easily obtained from passive strategies betting on beta, or average broad market returns, as seen in the past five years, Allianz Global Investors Taiwan chief investment officer Weimin Chang (張惟閔) said.

Instead, investment profits might only be gained by generating abnormal returns through the use of active investment strategies, Chang said.

Chang said that he is not expecting significant market rallies in Taiwan, China, the US or emerging markets, and that investment returns in these destinations might only be gained by selecting stocks that outperform the market.

“The US-led feast of liquidity has concluded,” Chang said.

As governments in Japan and Europe are likely to continue quantitative easing policies, Chang said that he expects growth momentum to take hold in these markets next year, when corporate earnings are to be boosted by weakened currencies.

In the US, as interest rates rise, the price-to-earnings (PE) ratio of US stocks will fall due to rising capital costs for companies, Chang said, advising investors to closely monitor whether corporate earnings in the country can keep pace with the change.

Stock prices will rise if gains in earnings per share outpace the decline in PE ratio, he said.

He also noted that compared with past increases, the US Federal Reserve’s expected interest rate hikes are not aimed at taming runaway inflation and economic growth, but rather to prevent asset valuation from going awry by normalizing interest rates.

US corporate earnings are expected to be strained by rising wages in the country, and a strengthening greenback, Chang added.

“Near-zero interest rates cannot be the norm for any financial market, as an excessively low cost of capital artificially inflates the value of assets,” Chang said.

In addition, the Fed has preserved a vital tool for it to influence monetary policy as a contingency for the next major economic downturn, he said.

Meanwhile, the correlation between Taiwanese and US markets is expected to continue to diminish next year, as the nation’s economy becomes more integrated with China’s, he said.

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