Unanimous decision, broad range of measures that are beyond expectations, with the door open to do more. Rate cut less than most expected, SMP non-sterilisation is in-line, ABS programme being planned (but not decided) and targeted LTRO above expectations – the TLTRO is the big change.
On T-LTROs, borrowing from the BoE, except that it’s €400bn at MRO+10bps for 4yr and targeted to non-financial companies (not mortgages or public sector). This is wonderful for big companies looking to do deals and therefore the big banks, especially the French and peripheral. Will it increase SME loan demand in the periphery? Who knows.
Clearly this is incremental stimulus, but there is also more in the pipe i.e. QE is still an option. Bottom line certainly positive markets, risk and cyclicals which is being reflected in move in US 10y yields (see next idea).
Prior to this announcement, Chinese export trends to the EU (China’s largest trading partner) have been showing improving trends and recent data has shown new export orders to be relatively robust
Further stimulation from a region who’s crisis in 2009 lead directly to China’s trade supporting credit binge can only be a good thing particularly as we approach an export number that we think may be positive. Given the majority of credit issues in China can be cycled back to trade related manufacturing loans, this news from the EU may not only support an already improving trade outlook, but also significantly improve credit quality outlook. At the very least an improved EU may give the Chinese government the growth buffer they require to confidently move ahead with reform.
Asian names with large European exposure include:
1. Hutchison Whampoa – 13 HK (52% sales)
2. Makita – 6586 JP (41% sales)
3. Cochlear – COH AU (40% sales)
4. Acer – 2353 TT (38% sales)
5. Ansell – ANN AU (38% sales)
6. Nippon Sheet Glass – 5202 JP (37% sales)
7. Brambles – BXB AU (37% sales)
8. Shimano – 7309 JP (35% sales)
9. Hyundai Motors – 005380 KS (30% sales)
10. Tata Consultancy – TCS IN (29% sales)
11. Canon – 7751 JP (29% sales)
12. Nintendo – 7974 JP (27% sales)
Hutchison Whampoa – 13 HK (52% sales) trading on 19.5% FCF yield (in Aviate HQG basket) for the next 2 years at 6x EV/EBITDA, remains excellent value.
