According to Duncan Lawrie Private Bank, the increase of liquidity into global markets through Quantitative Easing (QE) has increased a number of investment sectors and created dangerous market valuations that will pose serious risks to investors when the QE is finally tapered.
With the US’ plans to cut back its QE programme and UK figures indicating a stronger economy with less QE stimulus, investors in search of high yield returns may now see their investment plummet, as liquidity in some markets dries up and the high yield bubble bursts, reported Duncan Lawrie Private Bank.
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Investment Manager at Duncan Lawrie Private Bank, James Humphreys, said: "Withdrawal of QE will have huge implications for global markets, not least because all the money sloshing around has had a significant impact on some sectors which would otherwise have remained somewhat lacklustre.
"Evidence of the potential threat facing UK investors can be seen in the US where all signs point to QE starting to be tapered."
The result has been a rise in the number of ‘Zombie’ businesses in the US, according to Humphreys, with few growth prospects and dying business models that are being kept alive by easy credit conditions.
"The ‘zombie’ companies that are now enjoying all the investment capital are less likely to provide returns on long term basis and when the QE is finally tapered, will experience a steep drop in value.
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By GlobalData"The global QE environment has ultimately forced UK retail investors to play with fire as low returns on cash and high quality fixed interest securities force them to naively take more risk with their capital in the search for a reasonable income.
"With the current UK interest rates at low levels, there is sign of the hunt for yield ending soon and valuations on some higher yielding assets are becoming completely detached from reality. But as liquidity dries up short-term opportunism in the market will come crashing down to earth with a bump and is likely to leave many investors out in the cold," Humphreys added.
