In a speech that sent investors running for the doors in disappointment, the outgoing European Central Bank president, Mario Draghi, also had onlookers wondering whether he had just laid the ground for the Japanification of the European economy.
Blackrock’s chief investment officer of global fixed-income, Rick Rieder, has gone on the record, backing ECB equity purchases of European companies as a way to “positively influence the private sector and improve European growth prospects”. The Bank owns close to 30-trillion yen in exchange traded funds, which amounts to almost 5% of the stock exchange’s large companies’ market capitalisation and almost 80% of Japanese ETF equity assets.
Of greatest concern, however, is how the Bank of Japan will be able to disinvest from the stock market down the line without affecting market prices. Monetary policy fixed income asset purchases do not pose this problem because they mature and fall off the balance sheet. That means the bank doesn’t have to formulate an exit strategy.
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