The rally in European equities is expected to continue on the back of January's quantitative easing (QE), according to two fund firms.
Core bond yields are low and will push investors into riskier assets, Klaus Wiener, a chief economist at Italy's Generali Investments Europe, writes in a note.
"With core yields so low, investors will be pushed into riskier assets; as a result, euro area stocks will rally with double-digit total returns now likely both this year and next," he says, adding that QE has set the tone for markets.
The outlook for the euro area economy has improved in recent months, Wiener writes in Generali's Market Perspectives. This is due to the impact of various European Central Bank programmes. Faster loan growth in the private sector is likely and the euro area economy will benefit from the sharp decline in oil prices and the strong depreciation of the euro.
Wiener says that, while some significant headwinds remain – such as geopolitical risks and weaker growth in emerging markets – a relapse into recession has become "increasingly unlikely".
Meanwhile, currencies and interest rates will continue to be fruitful for macro hedge fund managers on the back of QE, Anthony Lawler, a portfolio manager at Switzerland-based GAM, says.
QE drove European equities, sovereign bonds and corporate bonds up strongly in euro terms in January, while the euro itself weakened more than 6% against the dollar.
"We anticipate continuing to see tactical longs in European credit and equities as these markets benefit from QE flows as investors move up the risk spectrum, and as we potentially see improving fundamentals," Lawler says.
The moves that most widely impacted traders were the QE announcement and the broad strengthening of the US dollar, Lawler writes in a hedge performance update. He says macro managers got off to a strong start in 2015.
The US market was characterised by weak investor sentiment, he says. US equities were down and there was also a strong rally in risk-off assets including US treasuries, UK gilts and core European sovereign debt. This risk-off environment resulted in negative performance for hedge funds outside of the macro sub-sector, Lawler writes.
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