We update our views on whether ECB QE has had a positive effect on corporate earnings.
A better supply/demand balance in Europe, outperformance of “high yield“ globally, positive event-risk in the telecom sector and opportunities in local currencies, as well as other credit related investment themes, all present interesting opportunities for generating positive returns, even in a challenging environment.
Markets and economies are still being dictated to by unprecedented levels of monetary stimulus. We believe in building a portfolio of companies that are more likely to flourish in the growth environment beyond 2015.
Like many countries that have previously refused to reform at all levels, sometimes it takes a true crisis to change.
We expect short-term volatility but the threat of financial contagion via the banking system in Europe is much lower than in 2011/12 and we’re unlikely to see a severe longer-term impact on global markets.
We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.
In sum, there certainly are some worrisome issues, as always, but we find none of them convincing enough to prevent moderate increases in equity prices.
Central Banks: Despite firm economic growth, we believe that a negative YoY CPI through September will steady the Fed's hand.
Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.
Through 2014, one of the largest asset classes in the world was virtually unnoticed as an indicator that Europe is not pushing the global economy into widespread deflation.