Pro News and Analysis

How to trade Draghi's new stimulus


Mario Draghi, the president of the European Central Bank (ECB), has once again caused a burst of activity in equity markets following his announcement of more asset purchasing by the central bank.

Markets might be broadly lower on the ECB announcement, but analysts are busy building portfolio strategies to take advantage of stocks that are expected to outperform as we approach the holiday period.

CNBC takes a look at some of the advice being given by European-based analysts:

A rising tide...

Traders work on the floor of the New York Stock Exchange.
Getty Images

Euro area equities were generally expected to rise with Thursday's announcement by Draghi. The ECB cut its deposit rate to -0.3 percent and announced an extension of its quantitative easing program. The benchmark Euro Stoxx 600 Index has already added 12 percent so far this year and is up 10 percent in the last month on just expectations that Draghi was due to unveil further stimulus on Thursday.

However, the same benchmark slumped 2.5 percent after the announcement as the euro rose. David Bloom, global head of FX research at HSBC, told CNBC Thursday that he expected the euro to climb further over the coming months as it had become such a crowded trade.

A spending surge?

European Central Bank president Mario Draghi waits for questions during a news conference at the ECB headquarters in Frankfurt, Germany, September 3, 2015
ECB's Draghi underwhelms; euro jumps, stocks tumble

Many analysts are hoping domestic sales will receive a boost as the liquidity trickles down through the economy. With rates so low, many are expecting a rise in household balance sheets as the costs of mortgage repayments are suppressed.

Neil Dwane, chief investment officer at Allianz Global Investors, told CNBC via email that he especially liked stocks exposed to the euro zone's so-called peripheral nations like Italy, Spain and Ireland.

"We like the look of some of the big retailers, companies like Inditex and the big consumer staples like British American Tobacco, Imperial Tobacco Group, Reckitts and Unilever," he said.

Fewer defaults?

President of the European Central Bank Mario Draghi
ECB to extend QE until at least March 2017, buy regional government bonds

Ashok Shah, director of asset management company London & Capital, believes that bond-buying will also benefit banks as the amount of defaults and bankruptcies reduce.

"Buying globally systemic European banks and also national champions is a good strategy," he said.

Christoph Riniker, the head of strategy research at Julius Baer, is another market insider who is "overweight" financials in this environment, and advocates buying stocks like Italy's Unicredit, France's BNP Paribas, Societe Generale and Axa.

Gemma Godfrey, the founder and CEO at wealth manager, agrees, telling CNBC that European banks will benefit short term as, post-restructuring, cheap loans - aided by the central bank's stimulus - will flow to the bottom line.

Correction: This article has been updated to reflect that David Bloom at HSBC expects the euro to climb further over the coming months.

Disclaimer: Patrick Armstrong's Plurimi Investment Managers fund owns shares of Siemens, Philips, BMW and Airbus.

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