Recap: asset classes and ECB QE – Morgan Stanley

For those investors who did not have time to read all Morgan Stanley’s reports about ECB QE and its impact on asset classes, here’s the summary of the summary.

« What to watch for, and what we expect: The key parameters for any QE announcement are: size (unlimited or fixed?), risk-sharing (pooled or not?), weighting (flexible or by capital key?), and the treatment of program countries (included or excluded?). We discuss what would positively surprise the market, and what we expect.

Broadly, we think QE is quite expected, but not expected to “work”: While action is widely expected, signs abound that the market questions the ECB’s ability to get inflation back to target. We note which assets look more optimistic about QE, and those which look less so.

Key views in FX: Our FX strategists like long USD going into Thursday (favourites vs. CEE, ZAR) and short EUR. They expect any bounce in the EUR on a ‘disappointment’
to be a selling opportunity, as we would expect this to be followed by structural outflows.

Key views in rates: Our rates strategists like Spain/Portugal over Italy in the periphery, Germany over France within core but prefer US treasuries above all. They have also closed their short in EUR 5y5y inflation, one of their ‘Top Trades for 2015’.

Key views in equities: Our equity strategists see 8% upside for EMU equities over the next six months. Cyclicals (autos, industrials, and chemicals) tend to do best around QE, while banks and defensives (utilities, real estate, food & beverage) tend to perform worst.

Key views in EU credit: Our credit strategists see riskreward as favourable, and believe IG spreads could tighten 20-25bp (~20-25%) from current levels in the event of QE.

Key views in EM credit: Our EM strategists believe that even ‘mild’ QE will benefit EM fixed income via low European yields pushing investors to seek out higher returns. They like CEE, followed by lower-beta Latam. »

Les commentaires sont fermés.