Further QE in US could be on the way, says O’Neill

Federal Reserve chairman Ben Bernanke is playing for time and a third round of QE could be on the horizon, says Bill O’Neill, chief investment officer for Europe, Middle East & Africa at Merrill Lynch Wealth Management.

Bill O'Neill
Bill O’Neill

In his semi-annual address to Congress last week, Bernanke avoided suggesting additional monetary accommodation, despite weak job market conditions and “record levels of long-term unemployment”.

O’Neill says: “Chairman Ben Bernanke was clearly playing for time in his semi-annual address to Congress… it disappointed those looking for immediate action once Operation Twist ends mid-year.”

He adds: “We still believe a tailored QE3 late in the year is a very plausible option.”

While US data is currently offering some support to global revival, O’Neill says investors will be more drawn to emerging markets and emerging Europe. (article continues below)

O’Neill says Emerging Europe offers strong investment opportunities, adding: “Emerging Europe has broadly managed its finances more successfully. Russia, with low debt levels across all sectors, has the potential to leverage-up public and private balance sheets and spur investment-led growth.

“Overall, selective investment in the region may diversify investors’ emerging market exposure – recent liquidity injections may further support the region”, he says, while warning that capital outflow may reappear if the sovereign debt crisis worsens.