The Impact of ECB QE

09 April 2015

Standard Life Investments, the global investment manager, highlights the winners and losers of European Quantitative Easing (QE) in the latest edition of Global Outlook. Standard Life Investments looks at how different asset classes, economies and global markets are adapting and behaving since the ECB's announcement of €60bn of bond purchases a month until autumn 2016.

Keith Skeoch, CEO Standard Life Investments said:

Keith Skeoch

"Global equity markets have made a good start to the year and the recent ECB QE programme demonstrates how economic policy can have a major impact on the investment cycle and return environment.

"European policymakers have looked to put in place structural reforms to promote growth and reinforce the positive case for investing in financial assets. Now we are starting to see the effect of this policy on different asset classes and global markets. In particular we see European and Japanese equity markets, high yield euro credit and commercial real estate emerging as early winners, with the euro currency continuing to struggle."

Andrew Milligan, Head of Global Strategy, Standard Life Investments added: "As a House we have decided on a rotation away from the US and UK equity markets, towards Europe and Japan. Much of Europe is seeing earnings upgrades as analysts realise that economies are recovering from weak growth in 2014 while QE will support profits growth through Euro currency depreciation."

Philip Laing, Investment Director, Government Bonds, Standard Life Investments said: "A smaller pool of government bond issuance, already at ultra-low bond yields, will cause the ECB difficulties in sourcing the bonds. These reluctant sellers should create a healthy positive price tension, particularly at the long end of the curve where issuance is so limited."

David Ennett, Investment Director, Credit, Standard Life Investments said: "We see QE as very supportive for euro high yield. The temptation for investors will be to rush into ever longer duration and higher risk positions. However we find the best value, and value being much more than simply yield, in a diversified portfolio of well capitalised companies in core Europe."

Anne Breen, Head of Real Estate Research and Strategy said: "While there is no assurance that the Euro will recover over the next 12 months, the depreciated currency does offer an attractive buying opportunity for US investors which should lead to strong capital flows. In continental Europe, opportunities for real estate investors remain more abundant and attractively priced relative to the UK, and we are seeing evidence of the gap in returns narrowing. Lower risk funds will find attractive risk adjusted returns in Europe's largest and most liquid core markets such as Paris, the top five German cities and Stockholm. We also favour Dutch markets for income return and capital value recovery."

Ken Dickson, Investment Director, Currency, Standard Life Investments said: "A positive outlook in European assets from QE does not create the conditions for a Euro recovery. On balance, we retain a preference for the US dollar versus other major currencies in our portfolios."