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Draghi delight: Asian investors positive on ECB stimulus measures

Draghi delight: Asian investors positive on ECB stimulus measures

European Central Bank President Mario Draghi announced a string of monetary stimulus measures late last week to keep the eurozone's recovery on track.

Along with a surprise cut in interest rates, Draghi announced plans to start buying non-financial asset-backed securities in October to kick-start credit flows, as well as plans to buy euro-denominated covered bonds.

With that in mind, Citywire Asia canvassed leading investors to find out what, if any, impact this new set of stimulus measures will have on Asian asset prices.

Arthur Kwong, head of Asia Pacific Equities, BNP Paribas Investment Partners

'We believe the recent quasi-QE program announcement by the ECB is slightly positive for Asia as a whole, but we don’t expect the impact to dramatically change the picture for asset prices in Asia.

'Asia asset prices are more sensitive to the US interest rate cycle and US dollar strength given that Asian currencies, trade finance, and commodity prices are more often translated into US dollars. Not to mention, the linkage between the US interest rate cycle is more directly related to a number of Asian economies such as Hong Kong, Singapore, etc. 

'Obviously, the ECB’s action and resultant weakening of the euro will be supportive for European exporters -- and as a result, create headwinds for Asian exporters.

'We don’t believe the recent action by the ECB is a game changer for global markets, since it remains to be seen if monetary policy alone can save the eurozone. It is likely that more accommodative policies will follow if the latest measure doesn’t soon reverse the current slowing growth trend and falling inflation.'

Jamie Grant, head of Asia fixed income, First State Investments

‘Asian markets have had a muted reaction to ECB announcements. Rather than being a ‘game changer’ Asian stock markets followed the US lead and most are down. Markets are more fixated mainly on US data and probably will take some time to digest the news from Europe.  

‘If the ECB’s measures translate into economic growth over time, then it is possible to draw a link to Asia, given its reliance on exports. However, recent history shows the path from financial asset purchases to growth and inflation is a long one.

'The chance for full blown QE remains, but for now the ECB has to deliver the various measures announced but not yet implemented.’

Matthew Sutherland, senior investment director, Fidelity Worldwide Investment

‘At the margin all measures designed to ease monetary conditions are likely to be positive for asset prices, so I would see this as positive for Asian equities.

‘However, markets would do well to remember that the ECB is doing this because Europe is teetering on the brink of recession and deflation, which is clearly not a good thing. Any action by the ECB to help prevent European deflation is therefore to be encouraged, in my view.

‘In itself, this relatively minor move is not a game changer for global markets, as there are many other influences on global liquidity, not least the monetary policies of the Fed, the Bank of England and the Bank of Japan.'

James McCann, UK & European Economist, Standard Life Investments

The ECB surprised markets by loosening policy in early September, although these measures only served to strengthen stimulus previously announced. A small interest rate cut should encourage take up at the upcoming TLTRO while the inclusion of covered bonds and RMBS in private sector asset purchases increases the potential size of this programme.

Overall these steps are not in themselves a game changer and should not have a significant impact on Asian asset prices. The signal they provide is however important.  

We expect the ECB to eventually undertake a larger scale QE programme incorporating government bonds. The scale of this programme would also generate a more pronounced impact on exchange rates and Asian asset prices.

We are already seeing the effect of weak Eurozone growth and loosening policy translate from local to international (including Asian) bond yields. A larger expansion of the ECB’s balance sheet would likely amplify this effect on Asian interest rates through a search for yield.

Full blown QE is however not imminent. However, continued disappointments in growth and inflation relative to the central banks forecasts are expected to force it down this route in 2015.

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