Stock markets can expect to receive a boost from a second huge European Central Bank liquidity injection, according to Lakefield Partner’s Bruno Verstraete, who says another 1 trillion euros ($1.32 trillion) will be available for banks at a quasi-free interest rate on February 29.
Stockshave moved higher and sovereign debt yieldslower since the ECBlaunched its first long-term refinancing operation (LTRO) in December last year. The FTSE and CACare up 6 and 7 percent respectively on the year, while Germany’s Xetra DAX is an outperformer, rising almost 15 percent since the beginning of the year.It has prompted Verstraete to increase his equity allocation from zero to 93.8 percent since November 2011.
“The European theme has been overestimated in the context of the world economy,” he told CNBC, advising investors to replace "risky bonds" with defensive stocks.
In terms of sectors, he favors defensive stocks in the consumer goods and utilities sectors, while shying away from high beta basic materials .
But Matterley Asset Management’s Henry Dixon disagrees with this allocation, saying: "In utilities, we see no cash flow at all… and on consumer discretionary, we see a situation where we have record valuations on a PE relative.”
Volumes remain low, but Verstaete says “The herd will join the positive mood” in stocks created by what he has dubbed "2012: The Year of the Draghi".