Two thirds of delegates think equities will be the main beneficiary of any new stimulatory measures by the ECB, while only one in nine think the bond markets would profit most. The expected stimulus for European equity markets has resulted in a significantly more positive European equity sentiment. The number of buyers increased from 27% to 45%, while at the same time emerging market equity sentiment has cooled down markedly. Only 35% of delegates said they want to increase exposure to the asset class, down from 60% in September.
Bond gains prompt change in delegate views
This autumn, Expert Investor Europe asked fund selectors all over Europe who would be the main beneficiary of the ECB’s policy actions, and there has been a gradual shift in response.Fund selectors in Sweden, The Netherlands and Italy, who were questioned in the second half of September, thought the bond markets would be the main beneficiary.
Oslo Amsterdam
However, as European bond markets have gained about 1.5% since then, the balance has now shifted. While delegates at our event in Munich in mid-October had mixed views, the next polls in Barcelona and now in Oslo showed a majority of delegates believed the equity markets were best positioned to benefit from a new round of monetary stimulus by the ECB.
The prospect of extra QE in the Eurozone met a lukewarm response from Francis Ellison, a European equity manager for Threadneedle who was speaking at the even in Oslo. “If they could find a solution to revive growth, they wouldn’t have to do QE. It has a fantastic short- to medium-term effect, but unless you can find an exit, it obviously has a negative effect on the long term.”
Deflation threat
But the ECB has another reason to ease monetary policy further: the threat of deflation. “I don’t believe we will see persistent deflation across the Eurozone”, said Ellison. “But I do question the banking sector. Anything like low inflation or deflation is catastrophic for the financial sector because in this situation the debt stays at the same level while the value of that money goes down.”
“The Japanification of Europe has been a trend for the last couple of years,” Sébastien Thevoux-Chabuel of Comgest, who also spoke at the event, added. “That’s why we don’t invest in companies which have more than 20% of their equity in debt, and are not exposed to banks.”
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