Quantitative Easing (QE) is here. What does it means for ASX shares?

The Reserve Bank of Australia (RBA) has initiated a program of Quantitative Easing (QE). What does it mean for ASX shares?
The post Quantitative Easing (QE) is here. What does it means for ASX shares? appeared first on Motley Fool Australia. –

quantitative easing represented by letters QE sitting on piles of cash

Yesterday, we heard from the Reserve Bank of Australia (RBA) after its monthly meeting concluded for November. Most headlines discussed how the RBA lowered interest rates to yet another record low of 0.1%, down from the previous level of 0.25%. This will have many ramifications, some of which we discussed yesterday.

However, the RBA made another very important announcement that I think is worthy of discussion today. In addition to the cash rate cut, the RBA also announced that it would be undertaking a massive government bond-buying program, which some are calling Quantitative Easing (QE). QE is a new policy in Australia, but not around the world. In fact, the United States Federal Reserve has initiated several rounds of QE over the past decade, starting in the immediate aftermath of the global financial crisis. QE involves the central bank buying massive amounts of government bonds. This has the effect of lowering borrowing costs throughout the economy, which in turn is supposed to spur and encourage economic growth as a result.

Until now, Australia has avoided QE, but no longer. The RBA yesterday announced it would be going on a bond-buying spree of its own, promising to purchase $100 billion worth of government bonds over the next 6 months, with an aim to buy $5 billion worth every week until then.

According to reporting in yesterday’s Australian Financial Review (AFR), RBA Governor Philip Lowe told Australians that “the lower interest rates and our plan to buy $100 billion of government bonds over the next six months will help people get jobs and support the recovery of the Australian economy”.

So what does this mean for ASX shares?

QE for the ASX?

QE is normally viewed as highly supportive of assets like shares. That’s because it crowds out buyers in the bond market, forcing more capital into those markets, which then tends to spill over into other asset markets. It also lowers the yields of government bonds, which also pushes out buyers not willing to accept rock-bottom bond yields.

We’ve seen this play out over in the US. Since November 2010, the Dow Jones Industrial Average Index (DJX: .DJI), a flagship US index, is up more than 145%, whilst the Nasdaq Composite (NASDAQ: .IXIC), another flagship index, is up more than 330%.

One could conclude that QE has played a significant part in these returns. Thus, that’s probably why the S&P/ASX 200 Index (ASX: XJO) was up a hefty 1.9% after the RBA’s QE program news yesterday. 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Quantitative Easing (QE) is here. What does it means for ASX shares? appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!