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Rate hike fears – are they warranted?

Thanks to the extensive forward guidance of the world’s major central banks, an interest rate hike by either the Fed or the Bank of England would not take investors by surprise. However, short-term consequences could still be grave, Bank of England Governor Mark Carney has reportedly warned.


According to the Sunday Times, Carney told fund managers to prepare for a mass sell-off in stocks and bonds that could be triggered by a Bank of England rate hike.

While some types have been fretting about the impact of a rate hike on mortgage rates, which are currently at record lows, the reasoning behind the hike is far more important than that, says Stephen Bell, director of global macro at BMO, an asset management company. “If it reflects better economic growth, then that will be positive, if it is in order to keep inflation under control that would be a worry.”

However, while he maintains that it is important not to be complacent on inflation, Bell does not believe that this is a concern at present.

Which begs the question, why should Carney be concerned about the ability of the asset management sector to withstand household selling?

The answer could lie with some of the flags raised earlier this year by the Bank of International Settlements (BIS).

In its annual report it said: “The asset management sector has grown considerably over the past decade. Despite a mid-crisis hiatus, which mirrored mainly valuation losses, global assets under management (AUM) rose from roughly $35 trillion in 2002 to $75 trillion in 2013.

“The sector remains highly concentrated, with the top 20 managers accounting for 40% of total assets… As risk-taking migrates away from the banking sector, asset managers have played a pivotal role together with their customers and these customers’ investment consultants.”