Central banks have awakened investor appetite unseen since 2008

Investors have not seen such rapid growth in stock indices for several years. Over the past week, European stock indicators grew by more than 11%, American ones added 8-8.7%, Russian ones rose by 6.7-10.3%. The willingness of leading central banks to launch a new round of quantitative easing, i.e., to add liquidity to the financial system, has awakened investors' appetite for risk. However, next week the political authorities of Europe, whose credibility is still low, should also have their say.

Since the beginning of the week, the MICEX index has grown by 6.7%; it has not soared so much since October 2009. As a result, the index closed above the level of 1,500 points for the first time in the last three weeks, at 1,505.77 points. Due to the depreciation of the dollar (by 2%), the RTS currency index showed more significant growth - by 10.3%, rising to 1,545.57 points. A rapid breakthrough allowed them to return to the values of early November. Leading Asian indices during the reporting period grew by 1.8-8%, American indices by 8-8.7%. The leaders of growth last week were European stock indicators. Thus, the German DAX and the French CAC 40 jumped by 11%; investors have not seen such a rally since the last ten days of November 2008. The leader among European indices was the Italian FTSE MIB, which rose 11.7% over the week for the first time since September 2001.

Leading central banks added optimism to investors as they announced agreements reached aimed at supporting the global financial system. The US Federal Reserve (Fed), the European Central Bank, and the central banks of Canada, the UK, Japan and Switzerland have agreed to cut interest rates on dollar swaps by 50 basis points and to extend swap agreements until February 1, 2013 (see below). "Kommersant" dated December 1). This instrument was launched by the Federal Reserve during the acute crisis phase of 2008-2009 to provide short-term dollar loans to major central banks. Swap lines were also actively used in May 2010, during the aggravation of Greece's debt problems. According to Timur Salikov, portfolio manager of Alliance ROSNO Asset Management, the measures taken will provide significant support not only to European banks, but to all banks experiencing difficulties in attracting dollar liquidity. Moreover, this measure will have a positive impact on the real economy, as it may lead to a reduction in the rates at which banks issue loans to companies. Mr. Salikov calls the actions of central banks the third round of quantitative easing and expects a reduction in the “negative consequences for the global economy from a possible sharp deterioration in the situation with sovereign debt in Europe.”

The chief investment director of Gazprombank - Asset Management, Andrei Zokin, also notes the fact of a one-time coordinated action by several central banks, i.e., actions that the political elites lack. “It is the signal about possible coordinated political decisions that is very important for investors; they perceive it as the first step in restoring lost trust,” emphasizes Mr. Zokin. In such conditions, the yield on ten-year Italian sovereign bonds, which rose this week to a historical high of 7.5% per annum, yesterday dropped to 6.6% per annum. The yield on ten-year Spanish government bonds fell to 5.6%, although it has not fallen below 6% for three weeks.

However, despite the positive sentiment that has formed in the financial markets, experts doubt that they will lead to long-term growth of the stock market. As Mr. Zokin notes, the announced measures are clearly not enough for a rally. The cost of debt servicing is too high for most European countries and investors' assessments of the resolution of banking problems are too low. “Only a more active participation of the ECB in solving the problem, primarily through the monetization of government debts of problem countries, can save the situation,” says Timur Salikov. According to senior analyst at Renaissance Asset Management Sabina Mukhamedzhanova, an important test of the market's strength will be the EU summit on December 9, where a decision may be made to tighten the financial discipline of a number of countries and create a supranational body. “If all the announced proposals are accepted, and the European Stabilization Fund is increased to at least €1 trillion, this will be the second important step,” notes Mr. Zokin. Only after this can we expect the beginning of stabilization in financial markets, the expert summarizes.

Vitaly Gaidaev

Indices turned positive again towards Europe