By Divya Chowdhury

MUMBAI, (Reuters) – Uncertainty about the pace of monetary policies will lead to volatile risk assets in the first half and a rise for equities during the second half. Asset managers stated that this would be followed by a downward trend for equities over the remainder of the year.

According to Antonio Cavarero of Generali’s Investments (MI) Insurance Asset Management, (GIAM), markets will respond well to rate rises but it might take them longer to “absorb and digest” quantitative tightening.

Cavarero stated that “if central banks move higher in the level of hawkishness then it might cause more volatility and will most likely face more difficult markets,” he said to the Reuters Global Markets Forum.

GIAM had assets of 470 billion euros ($534 trillion) as of December 2020.

Cavarero stated that he is more optimistic about the second-half of the year, when there will be less uncertainty surrounding central bank actions.

Cavarero stated that he favors value stocks such as energy and banks, given the possibility of “a clearer vision about the future”. Cavarero also supported bonds with long maturities as the yields increase.

As high volatility spreads in both investment-grade and high-yield debts, credit markets will require greater investing discipline.

Kevin Headland is co-chief investment strategist for Manulife Investment Management. He said that central banks are not raising rates above ‘normal levels in an effort to counter overheating economies or runaway inflation.

Instead, they will remove the additional stimulus which was in place during lockdowns that sought to limit the spread of the pandemic.

Headland was “constructive,” on U.S. high yield or lower-rated investments-grade bonds in corporate credit.

The minutes of the Jan. 25–26 policy meeting show that Fed officials do not have a set pace for rate hikes.

Taimur Baig was the chief economist of DBS Bank and predicted that the Federal Reserve will manage demand side risks by adjusting to four rate rises in a slow cycle. This is because he believes inflation expectations for the U.S. are well-anchored.

Cavarero indicated that Fed officials know the time window for increasing rates is short and therefore expect the U.S. central banking to hike them much faster than they have in the past cycles.

($1 = 0.8799 euros)

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