Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

Continue Reading

Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

Continue Reading

Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading

Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

Continue Reading

Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

Continue Reading

Categorized | Equities

Imminent QE triggers European fund inflows


Posted on February 27, 2015

You need JavaScript active on your browser in order to see this video.

No video

European funds are attracting a rising tide of money as investors prepare for the dawn of full-blown quantitative easing by the central bank to combat deflation and jump start growth.

Stocks have reached new highs and bond yields have fallen to ultra-lows as capital inflows to European equity and credit funds increase.

    Funds that invest in European equities took more than $4bn in the week ending February 25, according to data from EPFR Global, helping to push the FTSE Eurofirst 300 index to a seven-year high this week.

    Even Greece, home to a debt crisis in constant danger of boiling over, had its biggest inflow into domestic equity funds so far this year.

    With the European Central Bank scheduled to begin a programme of sovereign bond buying in March in an attempt to boost the currency bloc’s fortunes, investor focus remains on how rates markets will react, said Justin Knight, strategist at UBS.

    European bond funds recorded capital inflows of €1.09bn during the past week, marking a slight demand slowdown from the pace of the previous three weeks, but sufficiently high to enable Germany to sell more than €3bn of five-year debt with a negative yield for the first time.

    Across the eurozone, yields on government debt have fallen to record lows following the ECB’s announcement that it will begin a €60bn a month programme of bond buying in March. As a growing swath of government bond yields drop below zero, countries including France, Finland and the Netherlands have been able to sell debt to investors at a negative yield, meaning that in effect investors pay to lend the governments money.

    “QE is coming at a very opportune time for these bond markets,” said Mr Knight. If the bond buying plan boosts growth and borrowing costs continue to fall it could mean that countries in the eurozone see their debt to GDP ratios drop, making their debt burdens more sustainable.

    Corporate borrowers have also moved to take advantage. US companies including Priceline, AT&T and Mondelez International opted to raise money in European debt capital markets this week, pushing the number of sales by US borrowers in Europe to a record high of $16.5bn so far in 2015.

    But for fund managers, low or even negative yields in fixed income are more uncomfortable.

    Andrew Milligan, head of global strategy at Standard Life Investments, said there was interest among some investors in buying European equities as an alternative.

    “I think the appearance of negative bond yields is one factor, although we should not forget other aspects of this developing story — the improvement in European economic prospects and of course imminent QE affecting the euro currency,” he said.

    Tommaso Mancuso, head of multi asset at Hermes Investment Management, said clarification around QE had removed a significant point of uncertainty about investing in European equities. The fund manager recently rebalanced portfolios to reduce exposure to US equities and increase it in Europe.

    The caveat, he added, is the question of what might happen in the US. “The Europe story could be reversed if the Fed acts in a way that surprises investors. If it spooks the US equity market then it would be likely to have an impact in Europe too.”