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ECB could lift rates while tapering QE

Our round-up of the week’s best comment and analysis from the Financial Times focuses on the European Central Bank strategy, green investment and the future of India’s economy.

The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.

Olivier Garnier, a group chief economist at Société Générale, looks at the European Central Bank’s exit strategy from ultra-loose monetary policy. He warns investors not to rule out that the ECB could raise rates while it is still in the process of tapering its stimulus spending.

“Markets do not seem so far to have discounted the possibility of such a change in the sequencing of the ECB exit strategy. If circumstances were arguing in favour of this change, the central bank would thus have to prepare and communicate it well in advance.”

The Financial Times’ Stephen Foley describes positive and negative takes on the impact investing deal between the US hedge fund Mariner Investment and Crédit Agricole, which is a new twist on what is known as “synthetic securitisation”.

“The US hedge fund reckons it has found a way to turn an investment of about $150m into $2bn of new funding for renewable energy and other green projects.”

There are not enough data on the real-world impact that companies exert, such as greenhouse gas emissions, says Patrick Odier, senior managing partner in the Lombard Odier Group.

“This is one important reason why so-called ‘impact investing’ — which seeks out profitable ‘social enterprises’ whose goods explicitly make life more socially and environmentally sustainable — has tended to take the form of microfinance, private equity or debt, or Green Bonds.”

The FT’s John Authers describes an academic “clinical trial” of the five most popular Smart Beta factors: value, size, low-risk, momentum and income.

“In a pleasant surprise, the academics’ conclusion is upbeat. All five effects are genuine, in that they tend to cause stocks to perform differently (even if they do not always perform better) and all should be monitored by investors.”

Despite social support Narendra Modi, India’s prime minister, still needs to cut red tape, root out corruption and pick up investment to enhance the domestic stock market, the FT’s Henny Sender argues.

“Global optimism may be helping the stock market, but so far Mr Modi has largely been a disappointment for many investors. When Raghuram Rajan stepped down as governor of the Reserve Bank of India last June, the hope that the RBI would finally force banks to deal with their legacy of bad loans and unleash a new credit cycle in India vanished with him.”

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