Business

ECB cash injection boosts European shares

February 28, 2012

LONDON, Feb 28 — European shares rose today on optimism the European Central Bank’s (ECB) move to inject cheap cash would help banks manage their balance sheets, with equities seen gaining about five per cent in three to six months on improving liquidity and economic data.

Fund managers said investors should gradually buy more cyclical shares to reap attractive returns as sentiment was improving, the pace of global economic recovery was gaining momentum and a euro zone credit crunch has almost been avoided.

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange today. — Reuters picTraders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange today. — Reuters picInvestors focused on the ECB’s second offering of cheap three-year loans, with a poll predicting it was expected to allot €500 billion (RM2 trillion) at tomorrow’s long-term refinancing operation (LTRO), with forecasts ranging from €200 billion to €750 billion.

“It (LTRO) is a very strong blanket under the market and creates a safer environment for the financing of banks. It has also helped in lowering volatility,” said Didier Duret, global chief investment officer of ABN AMRO Private Banking, which manages about €170 billion.

A better-than-expected allocation would prompt speculators to buy more equities and help the market gain further ground, Didier said, adding the bull run was not over and equities could gain a minimum of five per cent in three to six months.

At 1233 GMT (2033 Malaysian time), the STOXX Europe 600 index was up 0.2 per cent at 264.35 points, while the FTSEurofirst 300 index of top European shares rose 0.2 per cent to 1,075.86 points.

The FTSEurofirst index, which fell 10.7 per cent in 2011, hit a seven-month high last week and is up seven per cent this year.

“There is every reason to believe the European market could make up for lost ground in the years ahead, and offers substantial upside potential. Our cautious scenario gives us a STOXX 600 objective of 285 points,” said Jacques Chahine, chairman of J. Chahine Capital that manages about US$400 million.

Charts also pointed to more gains. The euro zone’s blue-chip Euro STOXX 50 index, up 0.4 per cent at 2,524.06 points, was at the verge of a bullish technical signal known as a golden cross, with its 50-day moving average was about to break above its 200-day average.

“The golden cross is used as a ‘buy’ trigger by a lot of automatic trading programmes,” a Paris-based trader said.

Asset allocation

Didier said ABN AMRO Private Banking this month changed its portfolio to “neutral” on European equities from “underweight” by reducing its cash holdings to 20 per cent of its portfolio from 28 per cent at the start of the year.

In Europe, ABN AMRO bought shares of companies in industrials and consumer discretionary sectors in January and February, he said.

Deutsche Bank’s fund flows data showed US investors were more upbeat on European equities than Europeans themselves.

Funds domiciled in Europe have seen outflows from western European equity of 0.8 per cent year to date, while US-domiciled funds (invested in European equities) have received inflows of 7.1 per cent.

Cyclical shares were in demand today, with the STOXX Europe 600 automobile index rising 0.8 per cent, helped by a 5.7 per cent rise in PSA Peugeot Citroen after sources said General Motors was in advanced talks to buy a small stake in the French automaker.

STMicroelectronics rose 5.4 per cent after the group’s mobile joint venture with Ericsson, ST-Ericsson, won a contract from handset maker Samsung .

Mining shares rose 0.5 per cent, tracking a rise in key base metals prices on expectations of an improvement in demand for raw materials.

However, gains in equities were limited as credit agency Standard & Poor’s downgraded Greece’s long-term rating to “selective default”, and Chancellor Angela Merkel’s room for manoeuvre on future euro zone bailouts shrank further when Germany’s top court raised a hurdle to swift action in financial rescues. — Reuters

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