Eurozone cyclicals and Financials and German real estate are set to outperform under the increasingly likely scenario of quantitative easing (QE) by the European Central Bank, according to ING Investment Management (ING IM).
Such assets will be the biggest winners from full-scale QE, which could give a push to equity markets in Europe generally through higher valuations and improving earnings momentum.
Patrick Moonen, Senior Strategist, Multi Asset, at ING Investment Management, comments: “There has been a growing divergence between the relative performance of cyclicals in Europe and the US, which is a logical result of the divergence in economic performance of the two regions. A recoupling is possible if policy easing in Europe revives reflation hopes.
“Based on the US experience with QE, Financials could do well, too. Banks are also cyclical and if monetary policy drives economic growth then this will also drive bank earnings. Spread tightening is another positive for peripheral banks. The Asset Quality Review and stress tests will restore confidence in the sector, leading to higher valuations.
“We also expect higher real estate prices in Germany as real rates would fall further for a private sector that is running a high financial surplus with low private debt levels. German real estate prices are cheap relative to other countries and home ownership is low.”
ING’s base case in Europe is QE, which could also lead to a depreciation of the Euro. This would help Eurozone growth, inflation expectations and improve the earnings growth of Eurozone companies. Patrick Moonen adds: “If this happens, we would not exclude that over the next 18 months the growth rate of Eurozone earnings will be higher than in the US.”
DISCLAIMER
The elements contained in this document have been prepared solely for the purpose of information and do not constitute an offer, in particular a prospectus or any invitation to treat, buy or sell any security or to participate in any trading strategy. This document is intended for press use only. While particular attention has been paid to the contents of this document, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. Any information given in this document may be subject to change or update without notice. Neither ING Investment Management (Europe) B.V. nor any other company or unit belonging to the ING Group, nor any of its officers, directors or employees can be held direct or indirect liable or responsible with respect to the information and/or recommendations of any kind expressed herein. The information contained in this document cannot be understood as provision of investment services. If you wish to obtain investment services please contact our office for advice. Use of the information contained in this document is solely at your risk. No direct or indirect liability is held for any loss sustained or incurred by readers as a result of using this publication or basing any decisions on it. Investment sustains risk. Please note that the value of your investment may rise or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. This document is not intended and may not be used to solicit sales of investments or subscription of securities in countries where this is prohibited by the relevant authorities or legislation. Any claims arising out of or in connection with the terms and conditions of this disclaimer are governed by Dutch law.
