Given that central banks seem to have reached a cul-de-sac with regards to interest rates, now may be the right time to use ‘helicopter money’, said Rayner, manager of Miton’s multi-asset fund range.
If helicopter money – a one-time fiscal stimulus permanently financed by central bank buying of government debt – works, bond yields should rise, and equities will see a rotation away from consumer staples toward economically sensitive sectors like industrials, according to Rayner.
Helicopter money is designed to give a direct demand boost to the economy, bypassing financial markets, and thereby lifting growth and inflation expectations. However, said Rayner, there are valid concerns that similar policies in the past have led to destructive outcomes, where inflation spirals out of control.
But in Rayner’s view the reluctance to discuss the possibility of helicopter money is mainly political. “The obstacles seem to be very much political and conceptual rather than say, technical or legislative, and so, helicopter money is unlikely to get much traction in economies like the US and the UK unless the situation worsens and politicians are responding to a crisis, say a recession,” said Rayner.
“The impact on financial assets is unclear, as it depends on a number of factors,” he continued. “For example, if the fiscal stimulus is considered too small, its impact might be insignificant and if it’s considered too big it could be considered too inflationary.”
But if it works, bond yields should rise and we could expect a strong sector rotation within equities, away from defensive consumer staples, he said.
“At the moment, we continue to be positioned for a range of scenarios. Our base case remains ‘lower growth for longer’, so we have material exposure to defensive equity and developed government bonds, but we also have exposure to areas like emerging markets and some resource stocks, so that we’re not too scenario dependent,” Rayner added.
