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Points of View: ECB to expand its balance sheet

My last article highlighted the divergent policies of the US and Japanese central banks.  This week, the European Central Bank (ECB) followed the lead of the Japanese by announcing the expectation of further stimulus.  At a press conference, ECB president Mario Draghi suggested that its balance sheet could expand by a further €1tn and made it clear that ECB officials are unanimous on their willingness to increase stimulus if needed.

Whilst the euro has reacted by falling to a two-year low against the US dollar, equity indices in Europe took heart from Mr Draghi’s words and have rallied, despite ongoing fears of deflation.  Indeed, investment trusts with a focus on European equities have in aggregate seen their discounts to net asset value narrow from as wide as 7.3% within the past 12 months to 3.3% on average at the time of writing. However, it has not been such a good week for one European focused investment trust, Henderson Eurotrust (HNE), which announced it has written off the value of its investment in OW Bunker after the Danish ship fuel supplier warned it may go bankrupt in light of discovering fraud in a Singapore subsidiary. Whilst the resulting 1.1% fall in HNE’s NAV is disappointing for investors, this is the first write-off suffered under Tim Stevenson, who has a proven track record since he began managing the fund in 1992.

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