Speaking at a luncheon in Sydney, SSgA head of active quantitative equity for Asia Pacific Olivia Engel said the next five years are likely to reflect the past five years in terms of jumps in volatility and stops and starts in prices and earnings and a lack of credit growth.
A lot of the volatility occurring in the past five years has been the result of “ironing out all the issues [coming] out of the GFC”, said Ms Engel.
“There are still quite a few issues to iron out,” she said.
“We have the end of quantitative easing to grapple with, nobody can agree on what impact that will have on any market, and [we don’t know] what will happen to the euro or the eurozone, [or] whether Japan will be able to instigate the reforms that are necessary to achieve the objectives they’ve set out,” she said.
Against this backdrop, she said the scenario of the past five years is more likely than the five years the market had leading up to the GFC.
Ms Engel said it will be more likely to reflect 2010 or this year, rather than 2012 or 2013.
She said the uncertain interest rate environment is also likely to contribute to the spikes in volatility.
“I think it’s about having a balanced view,” she said.
“It’s very difficult to know which scenario will play out, so you need to protect for both events.”
Ms Engel said SSgA in the past 12 months has reduced the exposure of its Australian and Global Managed Volatility Alpha fund to interest-sensitive sectors and introduced some more growth orientated opportunities.
