A full-scale quantitative easing programme in Europe would be difficult to implement and could prove insufficient in kick-starting the region’s economy.
That is according to Citywire AA-rated manager Scott Thiel, who made the comments during a BlackRock 2015 investment outlook event.
‘Quantitative easing might not work in Europe for two reasons. First, it’s not inevitable, and I’m personally not 100% sure it will begin,’ Thiel said. ‘Secondly, I don’t see how the ECB buying sovereign bonds will change people’s investments and bring back inflation.'
The BlackRock deputy CIO for fixed income and manager of the BGF Fixed Income Global Opportunities fund added that Europe’s structure is different from the US, and therefore a QE programme would be harder to implement.
‘An outright government bond purchase would surely raise assets’ prices. But I don’t see why buying negative yielding German bunds could help the eurozone’s economy,’ he said.
He also said the market is already moving towards pricing-in quantitative easing but questioned this course of action. ‘It’s difficult to predict what it’s going to happen, but the way they might buy sovereigns and the size of the programme will definitely matter.’
Positive on European financials
On the investment side, Thiel likes subordinated financial debt in Europe, as he said the new regulation has cleaned up the whole sector. ‘European banks are in a deleveraging mode and the ECB is clearly supporting them,’ he said.
Meanwhile, in the US, the AA-rated manager favours structured products, as he said they provide high returns and good fundamentals.
‘Rates in the US will rise gradually. The asset class also benefits from the good condition of the average US consumer,’ he added.
Overall, Thiel prefers credit over sovereign debt and is positive on hard currency emerging market debt.
Japan equities in a sweet spot
Also at the event, BlackRock's equity unit expressed a bullish view on Japanese and European stocks. Nigel Bolton, CIO of international fundamental equity, said: ‘Both markets offer good valuation and growth potential, while US stocks are pretty fully valued.’
According to him, corporates’ earnings have yet to materialise in Europe. ‘The companies will benefit from a weaker euro, the falling oil price and an accommodative monetary policy. There’s potential for some fiscal stimulus packages as well.’
Bolton also identified two positive drivers for the Japanese market. ‘Domestic buyers have started to emerge from 25 years of hibernation. Pension funds are getting involved into domestic equities too.’
‘In the private sector, companies are buying back their shares and showing a more shareholder friendly attitude,’ he added.
The international fundamental equity CIO said he favours Japanese exporters and financials and he thinks the latter will benefit from the reflation theme going on in the country.