Prospect of QE3 whets investors' appetite

The prospect of further unconventional policy stimulus from the Fed and a summer lull in the euro-zone crisis supported risky assets in August. Nonetheless, we expect any extra boost to prices from the announcement of a third round of quantitative easing (QE3) by the Fed in September to be less significant than those that followed the first two rounds. The valuation of many risky assets appears less attractive now than at the outset of QE1 and QE2. And we think the euro-zone crisis is likely to flare up again soon.