ECB President Mario Draghi has hinted that the central bank could introduce further stimulus in early 2015 and even enact a bond purchasing program.
“The mantra is ‘Don’t fight the ECB’ — the central bank is set to inject €1,000 billion and to add sovereign bonds to its buying program,” analysts at Société Générale said in a research note.
While the euro currency has depreciated 10% against the U.S. dollar so far, analysts believe there is more room to fall after the ECB enacts further easing. Consequently, the weak euro will help bolster the Eurozone’s large exporting industry, making goods cheaper for foreign buyers. Morgan Stanley predicts the cheap currency could add at least 2% to earnings per share for European companies next year.
Lastly, lower energy prices will have an immediate effect on consumers, allowing Europeans to spread around their cash for discretionary purchases and spur growth. Additionally, the cheap oil will lower input costs for companies’ profit margins and lift earnings.
Furthermore, analysts believe that if the ECB begins a quantitative easing plan, the financial sector will be a key beneficiary. Most major Eurozone banks are already in good shape and should capitalize on improved credit supply and loan demand. For targeted Europe financial exposure, investors can take a look at the iShares MSCI Europe Financials ETF (NYSEArca: EUFN). However, the ETF does not hedge against currency risks.
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.