European markets enjoyed gains on the back of QE, with the German DAX rising 1.3%, the French CAC 40 rising 1.5% and the FTSE 100 gaining 1%.

Meanwhile bond yields fell across the region with the German 10 year bond yield falling from 0.6% to 0.45% and the UK 10 year gilt falling from 1.6% to 1.5%.

Gold edged up 1% to around $1,300.

Laith Khalaf, Senior Analyst comments:

‘QE has dominated movements in stock markets since the global financial crisis, and immediate reaction to today’s ECB announcement was textbook, with European stocks up, bond yields down, and gold edging higher.

As for the longer term, the jury is still out on whether QE is an effective way to jump start economies. The difficulty in reaching a verdict is we do not know how much worse things would have been in the US and the UK without QE, though after delaying such action for so long, the current problems in Europe probably gives us as good an indicator as we are going to get.

The Eurozone still faces political and economic problems, but it is important to recognise the distinction between economy and stock market. While some European companies are domestically focussed there are plenty of global brands with international earnings streams, such as Heineken, Siemens and Louis Vuitton.

The European fund sector also offers some very talented managers for investors to choose from. By running an actively picked stock portfolio, these managers have the potential to avoid the snakes and shimmy up the ladders.’

Why invest in Europe?

Europe has courted bad press for a number of years now as it struggles to get to grips with the low growth and high debt of several eurozone members states. However there are reasons for investors to consider investing in the European stock market.

-European stocks makes up around 15% of the world market capitalisation, so it makes sense to have some exposure in a diversified portfolio.

-Our long term valuation analysis (based on cyclically adjusted earnings) suggests Europe is relatively attractively valued compared to other world markets.

-Europe is home to many global brands that are not overly reliant on European economic growth.

-The European sector is home to some high quality fund managers; the European funds on our Wealth 150 have outperformed the market by 15% since December 2003.

-Many European companies stand to benefit from a lower oil price.

Funds for investment

Investors looking for exposure to Europe might consider the Sanditon European fund. Manager Chris Rice uses a business cycle approach to investing, reflecting the view that economic activity fluctuates around a long-term trend. He aims to correctly identify when the next stage of the business cycle will arrive, and the types of companies that will prosper, positioning the portfolio accordingly.

Alternatively investors might take a look at Threadneedle European Select fund. Manager David Dudding tends to spend little time attempting to forecast economic issues, instead preferring to concentrate on analysing and investing in what he believes to be high quality companies trading at attractive valuations.

 

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