On September 8 European Central Bank governor Mario Draghi will make an address where he will highlight the good and bad of the European economy.
If you are participating in the capital markets you may want to pencil it in your diary. Markets - at least for the time being - remain highly influenced by the decision of Central Banks to influence the economy.
We expect the ECB to announce additional Quantitative Easing measures (QE) given the recent developments in the European region, namely Brexit. For this reason we expect markets, especially in Europe, to maintain positive momentum as we move closer to the meeting.
Five stocks to buy before the meeting:
LYXOR ETF DAX
The LYXOR DAX (DR) UCITS ETF is an open-end UCITS IV compliant exchange-traded fund established in Luxembourg. The fund's investment objective is to track the performance of the DAX index.
Reason for recommendation: Additional quantitative easing should be beneficial for an exporting country like Germany, in line with a possibly weaker Euro. If you compare the performance of the DAX to other European Equity ETFs, you will see that the index outperformed in the build-up to and post the ECB announcement of QE ending January 2015.
ISHARES EURO STOXX50
iShares EURO STOXX 50 UCITS ETF (DE) is an open-end UCITS compliant exchange traded fund incorporated in Germany. The fund aims to track the performance of the EURO STOXX 50 index. The fund distributes income received to shareholders.
Reason for recommendation: Same as the DAX ETF with the difference that this index is diversified among other European countries, including peripheral countries like Italy which should outperform if the ECB announces additional stimulus measures. An additional measure could include some form of intervention to help the Italian banking sector which is facing difficulty and increased pressure.
ISHARES EUR 600 AUTO&PARTS
iShares STOXX Europe 600 Automobiles & Parts UCITS ETF (DE) is an open-end, UCITS compliant exchange traded fund incorporated in Germany. The fund aims to track the performance of the STOXX Europe 600 Automobiles & Parts index. The fund distributes income received to shareholders.
Reason for recommendation: Auto stocks have a higher beta than the market. With additional QE, we expect cyclical stocks like autos to continue their upward trend.
LYXOR ETF EURMTS 15Y+ IG
LYXOR ETF EUROMTS 15+Y Investment Grade - EUR is a UCITS IV compliant Exchange-Traded Fund incorporated in Luxembourg. The fund seeks to track the performance of the EuroMTS Investment Grade Eurozone Government Bond 15+Y Index.
Reason for recommendation: Bond yields are at record lows with the 10-year German trading on a negative yield. Having said that, we still see value in the longer end of the curve as additional QE should be supportive for European sovereigns.
We find this ETF in particular attractive for its longer duration and exposure to peripheral Europe which should continue to rally should further QE be announced. The fund has a 22 per cent exposure to Italian sovereign debt.
ISHARES EURO CORP BND EX-FINANCIALS
iShares Euro Corporate Bond ex-Financials UCITS ETF is an open-end, UCITS compliant exchange traded fund incorporated in Ireland. The fund aims to track the performance of the Barclays Euro Corporate ex-Financials Bond Index. The fund distributes income received to shareholders.
Reason for recommendation: In its January meeting, the ECB extended QE to corporates. An additional measure the ECB could take is to extend its list of corporate bonds it is buying, making this an attractive holding in a diversified portfolio.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.
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