Any stock-buying scheme by the European Central Bank could total around 200 billion euros (£172.58 billion), much larger than its programme to buy top-rated corporate bonds, Dutch bank ABN AMRO said.
The ECB is widely expected to extend its 1.7 trillion euro (£1.47 trillion) asset purchase programme given still low inflation and tepid economic growth, both of which the programme is designed to combat. A scarcity of eligible bonds for purchase, however, means there has been growing focus on alternative options.
Analysts say these could include large-scale share buying via equity exchange traded funds (ETFs), a policy already adopted by the Bank of Japan.
In a note, ABN AMRO said the structure used by the BOJ could be a model for the ECB. The BOJ buys stocks by buying ETFs via a trust bank and a money trust which track certain Japanese stock indices.
ETFs offer a convenient way to purchase a broad basket of securities in a single transaction from an exchange.
ABN AMRO’s research and view on the issue is its own, but it is one of the first calculations available from a bank and reflects at least some of the thinking in the market,
It said an ECB stock-buying programme could potentially lead to the European ETF market growing in size.
“Judging by the Japanese experience, a conservative assumption is that the market could grow by 30 percent on the announcement of a large scale ETF programme by the ECB,” ABN AMRO said. “This would mean that the market would increase from currently 450 billion euros to around 600 billion euros.”
ABN estimated the ECB would then be able to buy around 30 percent of the total, which would equate to a programme of around 200 billion euros.
That suggests, said ABN, that an ECB ETF programme could be much larger than its corporate bond-buying scheme, estimated at about 75 billion euros, roughly the same size as supranational bond purchases but much smaller than the government bond buying programme, estimated at over 1 trillion euros.
The ECB said this month it will study policy options to ensure it can pursue its programme.
Source: Reuters (By Dhara Ranasinghe, Editing by Jeremy Gaunt.)