Fed's Economic Steps to Boost Stocks, Hurt Dollar, Goldman's O'Neill Says
The Federal Reserve’s likely measures to boost the U.S. economy including buying back debt will spur further weakness in the dollar and gains for global equities, according to Goldman Sachs Asset Management’s Jim O’Neill.
“They will make essentially commitments to doing whatever is necessary to stop deflation in the U.S.,” O’Neill, chairman of Goldman Sachs Asset, told reporters in Seoul. “If that’s what they do, I think we will see further easing of financial conditions, which means almost definitely in the near term more dollar weakness, stronger stock markets around the world.”
The U.S. central bank will probably begin a new round of unconventional monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News. The dollar fell against most major counterparts yesterday as investors awaited the Fed’s decision and an election outcome that may hand Democrats their biggest defeat in seven decades. The MSCI AC World Index rose for a fifth day, gaining 0.2 percent to 319, the highest since September 2008.
The 53-year-old London-based O’Neill, creator of the BRICs acronym to describe large emerging markets, said while a new “bull market” in global equities probably started in the past 15 months, current valuations are far from “bubble.”
“We will get bubbles in the future, but current valuations of many equity markets suggest we’re nowhere near those kinds of issues,” O’Neill said.
BRIC Growth
O’Neill said emerging-market equities may represent 55 percent of global market capitalization by 2030, with China having 29 percent, India 5 percent and Russia 4 percent. By 2018, the aggregate gross domestic product of Brazil, Russia, India and China could become as big as the U.S., he said.
Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bond funds, both poised for their best year since Cambridge, Massachusetts-based EPFR Global started tracking them in 1995. Stock markets in the biggest developing nations may double as the Fed’s monetary stimulus sends valuations back to their 2008 peak, Dylan Grice, a global strategist at Societe Generale SA, said last month.
To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net Jungmin Hong in Seoul at jhong47@bloomberg.net
To contact the editors responsible for this story: Linus Chua at lchua@bloomberg.net Will McSheehy at wmcsheehy@bloomberg.net.
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