BNP Perspectives: Bold ECB moves head off summer uncertainties

Whilst a number of geopolitical issues raise questions for investors, I have identified several key themes for this autumn:

• The European Central Bank (ECB) is taking new steps but is faced with the risk of generating political tensions within the European Union (EU) as it rightly believes that the gravity of the European situation makes this necessary.
• Structural reforms are needed now to improve the economic outlook in Europe.
• Central bank liquidity injections will remain the dominant, indeed almost exclusive, force behind the direction of, and valuations in, financial markets for the forseeable future.

The ECB’s approach is rational and coherent: faced with the risk of deflation it is acting vigorously, using traditional tools (e.g. lowering key rates) as well as non-traditional ones (e.g. buying ABS, covered bonds, etc.).

The ECB is being bold in its actions: for the first time, we are seeing a central bank aggregating negative deposit rates and asset purchases!

Recent geopolitical events, while a source of uncertainty affecting economic activity, are so far doing little harm in financial markets, in the face of the words and deeds of the main central banks. Meanwhile, the ECB's decisions should weigh further on interest rates and support risky assets, including equities. Its actions have confirmed the decoupling of eurozone monetary policy from the course the Federal Reserve is steering, which is very important for the euro's prospects.

Investment climate – reducing risk
Joost van Leenders, chief economist of the Multi Asset Solutions team in Amsterdam, examines the investment climate and explains how this analysis is reflected in his team’s investment strategy. 

Fixed income: corporate debt outperforms
With government bond yields at all-time lows, Rashid Mohamed, Global Corporate Credit investment specialist at BNPP IP in Paris, makes the investment case for short-term European corporate credit.

Improving water quality in China
In a spotlight on Socially Responsible Investing, Alexandre Jeanblanc, SRI investment specialist in Paris, examines the challenges urbanisation poses to the provision of water to China’s population. He evokes some of the long-term solutions, including huge investment in infrastructure, giving key data examples to highlight the enormity of the projects.

Injecting dynamism into a broadly diversified portfolio: the Iso Volatility strategy
In our interview this month, Andrea Mossetto, investment specialist with THEAM in Paris, explains what the Iso Volatility strategy offers investors seeking a multi-asset alternative to low yields in many conventional asset classes.