According to the bank, this redistribution will result in a need for a rebalancing of global portfolios and, in its view the current environment developed countries are at a clear advantage.
The reasons for this, it says are: “one, cycles remain out of sync, with an acceleration in developed economies whereas emerging economies are experiencing a slowdown; two, impact on asset returns of the liquidity provided by central banks differs according to its origin: when provided by US/UK there is a greater propensity for it be channelled into risky assets (notably emerging markets), but when provided by Japan/Eurozone, it tends to be channelled into OECD bond markets; and three, weak commodity prices, especially for crude oil, benefit developed economies rather more than emerging economies.”
As a result, Natixis said, given its investment universe, it remains “markedly overweight” on equities, particularly in the eurozone and US. But, it has a preference for the eurozone, because it stands to benefit from a weak euro and weak oil prices and the ECB’s QE programme.
“There could be a direct impact from portfolio re-arbitraging and lower financing costs, and/or an indirect impact if QE, coupled with other measures and positive shocks, boosts confidence over the Eurozone’s recession exit. It will be recalled that US and Japanese equity markets benefited handsomely from asset purchase programmes by the Federal Reserve and Bank of Japan,” it added.
Credit markets
One of the major expected consequences of the ECB QE programme is a flattening of yield curves, writes the bank.
“Based on our assumptions, the ECB is set to buy nearly €700bn of sovereign bonds by September 2016.
This represents nearly 50% of gross issuance over the 19 months covered by the programme and, especially, 160% of net issuance over this same period. Even if the ECB’s purchases are conducted exclusively in the secondary market, this will have a very significant impact on yield curves, notably at the long end given the lesser liquidity.”
This should be favourable to duration extension, yield hunting and to a further outperformance by Europe.
