ZEW Financial Market Survey 2004 - European Stocks Seen More Positively by Analysts

2003 proved a good year for investors in German standard stocks. In fact, the DAX (German stock index) rose by a whopping 30 per cent since the beginning of the year.

In regard of the strong gains seen over the past month, the question at the end of the year is whether or not the upward trend will continue into 2004. As part of its monthly Financial Market Test, the Mannheim Centre for European Economic Research (ZEW) has surveyed 288 financial analysts on this issue. The results indicate that a large majority of experts are optimistic in regards to the coming year.

For 2004, the experts consider the DAX capable of rising by up to 4,300 points. Investors putting their faith in bonds might have a hard time achieving similarly high revenues. Particularly for finance and technology stocks, the financial analysts surveyed by the ZEW expect to see significant jumps in the rate of investment. According to the surveyed experts, the banking sector will also profit from current acquisition rumours and improving revenue expectations in the coming year. The prognosis for the technology sector is the most optimistic for 2004, where rates have taken some strong hits in the last few years.

When asked about favoured investment locations, most experts favoured Europe.  In a model portfolio with stocks from Europe, North America, Japan and emerging markets, European securities should represent about 60 per cent of the capital stock (25 per cent German stocks, 5 per cent British stocks, 30 per cent from the euro area). The analysts therefore weight European securities as being significantly higher than in previous ZEW surveys (2001: 48 per cent; 2002: 45 per cent).

In contrast, however, experts are rather doubtful about future developments in the US. It is expected that only 20 per cent of capital stock will be invested there. In view of the weak US dollar and the rather limited economic expectations, the USA currently seems to be a not so attractive location for investments. Instead, the experts recommend a broad diversification of the capital stock. Substantial parts of the portfolio should also take Japan and emerging markets into account. In view of increasingly optimistic growth expectations for Japan, experts deem ten per cent as the appropriate share of the portfolio to be invested in the Far Eastern industrial nation. In addition, about ten per cent should be invested in emerging markets. If the next year does bring the expected recovery of the global economy, the emerging markets have quite promising prospects.

Contact

Volker Kleff, E-mail: http://kleff@zew.de