U.S. Strong Enough to Withstand Tapering: Lynch

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Sept. 09 (Bloomberg) -- Andy Lynch, Portfolio Manager at Schroder Investment Management, discusses events worldwide affecting markets and his subsequent investing strategy. He speaks on Bloomberg Television’s “On The Move.” (Source: Bloomberg)

Translate growth of 7.5% as a fund manager.

Are you stepping back a little bit?

How does the china growth story play out to you, the fund manager?

In europe, the key thing is some of the industrial exporting they are doing so well through the chinese industrialization story will probably see demand weakened.

It may be time to step away from them.

Conversely, some of the more asia-focused stocks in the asia- pacific region that will benefit from chinese consumption, they are stories that can benefit from a shift in the mix of chinese growth.

What kind of industries would those be?

Anything relating to consumption.

We have seen suggestions that they are contemplating relaxing the one-shopper family policy.

-- one child per family policy.

If that happens, anything related to young children or babies will do extremely well if we start to see an increase in birth rates in china.

That is one example of things we're looking at today.

Japan winning the olympics, gdp getting better.

That happened over the weekend.

Does that shift your thinking?

Do you want to be more exposed to japan?

How do you play that story, even if the tax hike goes through?

The olympic story is great for feel-good sentiment, but as we saw here in the u.k. it takes a long time from winning the award, as we did back in 2005, to actually having material economic impact in 2011, 2012. it is great news for japan that they have won it, but as an investor it does not make any difference in the short term.

Ft had a cracking article this morning.

Investors have pumped more money into european equities than any time since 1977. are you seeing the same kind of flows?

You say the u.s. can now stand on its own two feet with tapering.

Absolutely.

We see our american clients getting more excited about europe.

Finally realizing that maybe there is a bit of life in the old continent.

That is good news , certainly, for us.

Turning back to the u.s., i think the u.s. economy is now strong enough to withstand tapering, starting with the meeting this month.

But let's not exaggerate with tapering means.

All that has happened is they are going from having their foot absolutely flat down right on the accelerator.

They still have their foot on the accelerator.

Higher yields , higher 10-year government bonds, gilts.

Now is the time to look at financials, insurers.

Absolutely.

Higher bond yields are great news for insurance companies.

Makes it easier for them to be -- to meet guarantees they have to insured people like you and i. also great news for any company that has a pension deficit.

As bond yields go up, the value of the deficits falls and it becomes easier to fund those obligations for current and future pensioners.

Normalization, getting us out of the world we have been in the last several years, is good news on the whole.

Where does that take you?

Does that take you even to the periphery of europe?

Or is it core europe i want to be involved in, those are the insurers?

A bit of both.

We are looking at some italian banks.

Concentrated more in the northern part of italy than the southern part.

Still good value in the core of europe as well.

You do not need to have -- go from no financials, no peripheries all the way to 100%. there is a nice balance.

Talk me through -- a recovery in play , is it more u.k.- centric?

Or is it mainland europe?

Talk me through your thinking.

The rationale is based around the discount rate.

Property stocks are valued, discount that at five percent or six percent.

As interest rates rise, the rate at which you discount your income stream goes up.

The net asset value of these companies is going to fall.

Offsetting that, you might see an increase in occupancy.

Might see a little bit of a pick up in rent.

But a big factor at these low levels is the discount rate.

That is why we are under way at the moment.

Oil at an almost two-year high.

China, as we said, growing.

Some like in the old dog of europe yet.

Why this view and commodities?

If things are getting better.

Is it a higher dollar erodes the commodity story?

We try to look at commodities as a set of different baskets.

So we would be a bit more cautious on goal -- gold.

As a store of wealth and capital preservation story.

In an economy that is healing, that function of goal becomes may be less relevant.

On the industrial commodity side, as gdp starts rising, absolutely things like copper and aluminum could do quite well.

Oil, because of the crisis in syria, looks like there is a bit of a political risk premium at the moment.

Hopefully that will come back out over time.

Ok.

we will leave it there.

Andrew lynch from schroeder investment management.

Great to have you here this morning.

One stock i want to bring to

This text has been automatically generated. It may not be 100% accurate.

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