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23 Jan 2015
ECB QE might support higher equity prices – GS
FXStreet (Barcelona) - Analysts at Goldman Sachs are of the opinion that the introduction of QE by the ECB might be supportive for equities and push the equity risk premium lower.
Key Quotes
“Around the middle of last year the slowdown of European and German, growth momentum, coupled with collapsing oil prices, pushed inflation expectations lower and with it, bond yields. At the same time the equity risk premium (ERP) rose to reflect the tail risk of deflation.”
“The introduction of QE should push the ERP lower and support higher equity prices and a higher multiple.”
“While lower deflation fears should bring the ERP down, any increases in growth expectations arising from the lower oil price and weaker euro should support this trend. We continue to forecast SXXP at 390 in 12 month and SX5E at 3800.”
“The sectors that are most sensitive to a lower ERP tend to be higher beta. Financials and cyclicals have most to gain, in our view. However we maintain our view that consumer and dollar-sensitive cyclicals should benefit relative to commodity and industrial cyclicals (whose earnings are vulnerable to capex cuts in the oil sector and from EM infrastructure demand).”
“We remain long MIB and IBEX and prefer SX5E relative to SXXP and UKX.”
Key Quotes
“Around the middle of last year the slowdown of European and German, growth momentum, coupled with collapsing oil prices, pushed inflation expectations lower and with it, bond yields. At the same time the equity risk premium (ERP) rose to reflect the tail risk of deflation.”
“The introduction of QE should push the ERP lower and support higher equity prices and a higher multiple.”
“While lower deflation fears should bring the ERP down, any increases in growth expectations arising from the lower oil price and weaker euro should support this trend. We continue to forecast SXXP at 390 in 12 month and SX5E at 3800.”
“The sectors that are most sensitive to a lower ERP tend to be higher beta. Financials and cyclicals have most to gain, in our view. However we maintain our view that consumer and dollar-sensitive cyclicals should benefit relative to commodity and industrial cyclicals (whose earnings are vulnerable to capex cuts in the oil sector and from EM infrastructure demand).”
“We remain long MIB and IBEX and prefer SX5E relative to SXXP and UKX.”