Finnish pension insurer Veritas believes a large-scale quantitative easing (QE) programme by the European Central Bank (ECB) – expected after the bank’s governing body has met – could revitalise economic growth in the region but is worried about German opposition to the plan.
Niina Bergring, CIO at Veritas, told IPE: “I am disappointed at the German stance on QE.”
She said it was hard to take a view on details of ECB policy in the short term, and that Veritas did not take positions in the short term on things it could not analyse.
“Slightly longer term, I have to believe the ECB can stimulate, as we are still carrying risk in our portfolio and do have European equities in a slight overweight, although again, the Germans do worry me a lot,” she said.
If the ECB failed in its intentions, she warned, Europe was in some trouble.
The announcement about QE is likely to come with a lot of strings attached, she predicted, adding that this will spark further analysis.
“I cannot rule out that, if it is complicated and avoids joint responsibility, this may lead to vocal opinions and questions on the euro as a solid long-term currency – again,” Bergring said.
With German opposition so strong – and some recent Finnish opposition materialising too – she said, a bad outcome for the euro as currency area is possible in the slightly longer term.
Because of this concern, Veritas has kept a low weighting in peripheral euro government bonds.
“We would rather take credit risk in companies we can analyse,” Bergring said.
Meanwhile, Finnish pensions insurance company Varma has positioned itself in the run-up to the ECB’s announcement by taking on US government bonds and trimming European equities holdings.
Timo Sallinen, head of listed securities at Varma, told IPE: “We have already bought more US Treasuries and reduced our European stock market exposure a bit after a nice rally.”
Sallinen does not believe any eventual decision by the European central bankers has been fully priced in to the market yet, despite the drop in bond yields and weakening of the euro that has already happened.
“The ECB needs to surprise the market,” he said.
The bond-buying itself is likely, in his opinion, to be carried out by the ECB itself, rather than by national central banks, with the main focus of the purchases being on the debt of core countries.
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