Last week the European Central Bank (ECB) lowered the official interest rate to 0.15%, and introduced a deposit rate of -0.1%. Yes, you are reading that right there is a minus in there!
What this effectively means is that savers now have to pay for the "privilege" of keeping their money on deposit. The aim of the ECB's policy move is to spur spending throughout the European Union (EU). In theory this works in at least two ways. Firstly, encouraging savers to spend their money, or invest it in riskier assets as there is a negative return from keeping it on deposit. Secondly, it can spur investment as debt is cheap.
For Australian investors, while the ECB's decisions may not appear to have any direct consequences, there are ways to benefit.
One stock which could be a beneficiary of the ECB's negative rate policy is Brambles Ltd (ASX: BXB). Here are three reasons Brambles stands to benefit.
1) Brambles earns approximately 34% of its pallet revenues in Europe and enjoys significant opportunities to expand its business in the region. The opportunity to borrow funds very cheaply and undertake acquisitions could see Brambles make many more acquisitions like the recent German-based Transpac purchase.
2) Given Brambles blue-chip status and defensive earnings base the company efficiently utilises debt on its balance sheet. As at 31 December 2013 the company had US$2.8 billion of debt and US$3 billion of equity. The low interest rates in the EU have provided the opportunity for the company to lower its average cost of debt with the group recently issuing €500 million of bonds at an attractive, low rate.
3) With an already large and growing exposure to Europe, the pooling giant would obviously benefit from a stronger EU economy. Currently global stock markets appear to be betting that the ECB's move will work with markets' rallying post announcement. If low interest rates do indeed spur economic growth, Brambles will be sure to benefit from the pick-up.
While Brambles may have the most to gain from a pick-up in economic activity, Ramsay Health Care Limited (ASX: RHC) and Ansell Limited (ASX: ANN) also have exposure to the EU region and stand to benefit from the ECB's moves
