The same logic will prompt investors to allocate more to those relatively fast-growing emerging markets across other asset classes as well, including public and private equity, infrastructure and real estate, noted Catherine M. Keating, CEO of U.S. institutional asset management with J.P. Morgan Asset Management.
In the realm of sovereign bonds, ING's Mr. Mata also anticipates more diversification. A U.S. default was “always a red herring,” but investors have to be concerned about purchasing power, in terms of what the dollar is going to be worth going forward, he said.
One industry strategist, who declined to be named, predicted the latest spectacle of dysfunctional Washington politics could have serious ripple effects, including an accelerated move by central banks to diversify their reserves away from dollar-based securities.
More broadly, observers say with the U.S. government stepping back from the stimulus game, it has become harder to outline a scenario where the U.S. economy anytime soon can return to trend growth, let alone the above-trend growth that could lower unemployment.
While many market veterans have come to expect a third round of quantitative easing from the U.S. Federal Reserve, few place much hope on the remaining plausible candidates to lead an economic recovery: an export boom or a spate of capital investments by cash-rich U.S. companies.
The weakness of European economies and slowing growth in China will undercut hopes for a surge in U.S. exports, some economists warn. That same weakness at home and abroad, meanwhile, will only add to the incentives U.S. companies have to target faster-growing markets overseas for their capital investments, noted Cambridge Associates' Ms. Dallas.
With the fiscal props to the global economy “being pulled away,” the conviction is deepening that investors will be looking at low growth for a long time to come, said Jack Malvey, New York-based chief global markets strategist with BNY Mellon Asset Management. Exacerbating that outlook is a diminution in confidence that U.S. policymakers are up to the task of dealing with the complex policy issues facing the developed world today, he said.
DeAM's Mr. Johnson agreed. The policymaking process surrounding the debt ceiling had a “reality show” aspect that surprised people, potentially undermining the confidence of investors, he said. The fear that “we're going to watch this again in the coming years” could prove a further drag on both markets and the economy, he added. n