The European Central Bank (ECB) is back in "whatever it takes" mode to stimulate the sputtering economy and Asian markets are set to benefit, say strategists.
"The added euro zone liquidity will not find easy outlets in Europe. Bonds are expensive; the German and French 2-year note yields dropped below zero. Some funds will flow into periphery bonds; some into equities and hold their breath," Uwe Parpart, chief strategist at Reorient Group wrote in a note on Friday.
"But a good deal of liquidity will be outbound," he said.
The ECB surprised investors on Thursday, cutting interest rates to record lows and announcing a program to buy asset-backed securities and covered bonds starting in October.
As the strengthening U.S. dollar makes U.S. stocks less attractive to foreign buyers, the added liquidity will flow into Asia, said Parpart, highlighting China and Japan in particular.
"As the U.S. dollar gains, the yen declines -- that's [Nikkei] positive, [especially] if the BOJ (Bank of Japan) also eases further. Meanwhile, the China rally continues and is supported both by still-low valuations and varieties of financial regulatory measures," he said. Chinese stocks are up over 9 percent year to date; Japanese equities, however, are down 3.5 percent.
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