ZEW Financial Market Test - Financial Market Experts Expect Poor Year 2010 for Stock Markets

The outlooks for stock markets in Germany and the USA are quite poor. A final result of an average of about 6,150 points is expected for the German stock market index DAX in 2010. In mid-December the DAX stood at almost 5,900 points and therefore the final result can be seen as a sideward movement rather than an increase. The American Dow Jones Index’s slight increase to the expected 10,650 points is hardly worth mentioning. This is the rather gloomy outlook of the 244 financial market experts surveyed in December 2009 by the Centre for European Economic Research (ZEW), Mannheim.

The experts assume that Euro/US-Dollar exchange rate will stay about the same. The experts expect that one Euro will equal 1.47 US-Dollar by the end of 2010, almost the same as the current exchange rate. As the price of gold increased immensely in the last few months, the experts expect an average final result of 1,138 US-Dollar a troy ounce. This is hardly any change at all.

As measure against the financial and economic crisis, the central banks have provided the markets worldwide with high liquidity. There are some inflation risks involved. Therefore, 55 percent of experts consider gold as safe investment to avoid monetary depreciation (see graph at end of press release). However, only one third of experts think that inflation index-based bonds are an alternative to gold. About 60 percent of experts consider the seven-year federal bonds with inflation protection to be a profitable investment. This is a hint that higher inflation rates are indeed expected.

Moreover, the experts were asked about possible risks when central banks exited their especially expansive monetary policy too early or too late during the last two years. The majority of experts (60 percent) consider a capital bubble due to a late exit of central banks more dangerous than economic risks due to an early exit (40 percent of experts).

For further information please contact

Prof. Dr. Michael Schröder, Phone: +49/621/1235-140, E-mail: schroeder@zew.de

Matthias Köhler, E-mail: koehler@zew.de