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Europe’s Fund Managers Praise Scale of ECB’s Pandemic Response

Europe’s Fund Managers Praise Scale of ECB’s Pandemic Response

(Bloomberg) --

Some of Europe’s biggest fund managers gave a guarded welcome to a huge European Central Bank debt-buying program aimed at bolstering a euro-area economy stalled in its tracks by the coronavirus pandemic.

By ramping up its asset purchases to 750 billion euro ($812 billion), the ECB will add much-needed liquidity that will keep borrowing costs in check. ECB President Christine Lagarde said there were “no limits” to the commitment of policymakers to the euro.

While Lagarde’s plan may be enough to revive the markets after the worst rout since the global financial crisis, it was too long in the making and may not provide a definite fix, some managers said.

Here is what investors are saying about the ECB’s program:

John Taylor, portfolio manager at AllianceBernstein in London

“It was very much needed as the market was clearly unimpressed with what Lagarde had announced at the ECB meeting compared to what other global central banks had delivered.

Fiscal policy only works if it is affordable. The ECB’s job is really to keep government bond borrowing levels very low so as not to prohibit the large borrowing that will be needed to fund both emergency fiscal spending as well as more medium-term plans that are likely to be forthcoming.”

Mark Dowding, chief investment officer at BlueBay Asset Management wrote to investors:

“It has taken a while ... but finally it seems that the ECB is starting to deliver. An additional 750 billion euros is a lot more than the paltry 120 billion euros deemed sufficient last week.

Most importantly it seems that finally the ECB is committed to capping sovereign spreads in the context of comments that they won’t tolerate impairment to the credit transmission mechanism and that they will increase size further if need be.

We should just be thankful for some relief, but I wait to see when we can begin to add risk.”

Luke Hickmore, investment director at Aberdeen Standard Investments in Edinburgh

“The size of the program being bigger than the sovereign crisis peak, the open-ended nature of the size and length and type of instrument and the inclusion of Greek debt is all great and will help to ease the liquidation event we are in for now.

However, the real economy shock is still unknown and we need to see the Eurozone fiscal response be co-ordinated and large. This is the new version of an old fashioned run on the banks. Instead, it is a run on markets because that is where cash savings have been pushed.”

Gordon Shannon, portfolio manager at TwentyFour Asset Management in London

“Everywhere people are either suffering redemptions or positioning for them, so there has been no buyer for bonds, even those everyone is comfortable with.

Adding a larger buyer into the market might just be enough to turn that around. I think the Bank of England should also take note of this.”

Alberto Gallo, portfolio manager for the Algebris Macro Credit Fund in London

“The program is finally commensurate to the task the ECB has at hand, in both size and flexibility. Previously, the ECB brought a water gun to a gunfight. This is a welcome development where the central bank will deploy over 1 trillion euros, including previous and future QE measures. This is adequate to the challenge ahead in our view.”

Even so, quantitative easing can’t solve the wider public health emergency and its spillover to the economy, he said.

©2020 Bloomberg L.P.