Banks “might have dropped the baton” on moves to avoid stagnation in Europe, a Legal and General Investment Management credit strategist has warned potential investors.
In the two-page note, The QE Relay – Watch out for a Dropped Baton, Ben Bennett said the European Central Bank “can print as much money and ease liquidity conditions as much as they want, but they are still relying on the banks to make the loans.”
He added: “Unlike governments, banks are generally private sector institutions with limited capital, and therefore sensitive to loans going bad.”
Michiel de Bruin, head of global rates for F&C Investments, said: “The expectation of more stimulus by the ECB should continue to underpin eurozone bonds as the winding down of QE in the US is ongoing and expected to be completed in October.”
Mr Bennett also said: “It remains to be seen whether the US government spent their freshly printed money wisely on economically sensible projects or simply stoked an even greater debt problem for the future, but at least this let US banks improve their balance sheets, allowing them to lend once more and boost economic activity.”
Adviser view
Jason Butler (pictured), senior partner of London-based Bloomsbury Private Wealth, said: “Europe will do its own thing and sort itself out – if people’s portfolios are broadly rebalanced, they will be fine.”
