Central banks have become “addicted to providing monetary stimulus at the first sign of trouble,” and are finding it hard to reverse that course, says Barnaby Wiener, portfolio manager at US giant MFS Investment Management.
Speaking at the Investment Magazine Fiduciary Investors Symposium on Wednesday, Wiener said interest rate cuts and extra stimulus through quantitative easing had driven a surge in risk assets and been a tailwind for owners of capital, “whether it’s invested in equity, property, fine art or wine.”
“I guess the interesting question is whether it’s actually had a positive impact on the economy as a whole, which I think is much more debatable,” Wiener said, pointing out the majority of the population keep the bulk of their money in deposit accounts rather than in equities or other risk assets.
Asked whether the expectation that central banks will always help out when issues arise has made the economy more fragile, Wiener said: “I would argue that it most definitely has.”
“I believe passionately that…any system requires a degree of stress in order to test it and to…shake out the dead wood.”
On the topic of big US tech firms, Wiener said their size has gone beyond stifling innovation, nearing a point “where individual corporations become so powerful it becomes a political and social concern.”
“We saw that obviously with other industries back at the turn of the 20th century, and I think we’re starting to see aspects of that with certainly some of those, you know, the big five tech companies.”
An audience member asked whether fundamental analysis is being hindered by the erosion of state sovereignty, with conglomerates increasingly moving tax commitments to satellite countries at will. Wiener disagreed that state sovereignty was in long-term decline.
“To that very point of global companies being able to arbitrage tax jurisdictions, I think that’s going to become harder and harder going forward,” Wiener said. “I think people are frankly increasingly fed up with it. And we’re seeing that already with sort of measures to clamp down on on tax arbitrage in certain jurisdictions, talk of of taxing company’s revenue at point of source.”
Given a brief introduction to the Australian government’s plan to block superannuation funds that underperform a passive public benchmark from accepting new money, Wiener labelled the proposal “a retrograde step”. It was suboptimal to evaluate the five-year performance of a savings program that might have a 40-year timeframe for someone far from retirement, he said.
“I think the growing importance of intermediary managers taking a longer term view, and using their position of responsibility as owners to engage with companies to encourage company management to make the right long-term decisions, that whole process is clearly impeded if these sort of draconian short-term performance benchmarks are introduced,” Wiener said.
“So I would be depressed if if that were the case,” he said.