Daily Management Review

QE exit won’t stop European stocks from rising


Mario Draghi’s words about curtailing the quantitative easing program will not stop the impetus for the growth of European stocks.

INSM via flickr
INSM via flickr
According to Bloomberg, investors and strategists hold such an opinion two weeks before the ECB's October meeting, at which the regulator can outline the future of its QE program.

A number of experts - from JPMorgan Asset Management to BNP Paribas SA - argue that a favorable economic situation and the long-awaited recovery of profits will continue to support European stocks, even when the ECB begins to reduce incentives.

Officials are considering various options for how the winding process may look after two and a half years of unprecedented softening. They made it clear that they intend to carry out this process gradually and cautiously. This promise calms the "bulls" in the stock market, which increasingly show that they do not need the support of the central bank for buying in the market.

"There may be a small rollback in connection with the ECB meeting as a result of general investor caution and the fact that economic data has recently been so strong, but any such pullback would be an opportunity to buy because there is support for fundamental factors, said manager of Reyl & Cie in Geneva, Marco Bonaviri. His company manages assets worth about $ 14 billion.

Bonaviri sees the possibility of further growth of European stocks until the end of 2017 in the range from 3% to 5%. He and other experts are considering the approaching reporting season as a catalyst for stock rallies at the end of the year, as the factor that put pressure on European companies (a strong euro) is weakening. Analysts expect that companies from the Stoxx Europe 600 index will record a 13.6% profit growth this year, according to data compiled by Bloomberg. For companies from the S & P 500 index, analysts forecast an increase of 10.7%.

Meanwhile, there are signs of disagreement between ECB officials about whether the strengthening of the economy means that it is time to put an end to mitigation, or whether it should be continued until inflation accelerates. Against this background, long-term investors in European equities are increasingly convinced that they need to focus not only on the actions of the Central Bank. This is a contrast to the situation of the past years, when investors in the stock caught every word of ECB representatives after Draghi's promise in 2012 to do "all that is needed" to save the euro.

source: bloomberg.com

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