ZEW Financial Market Survey - 2005: DAX May See Moderate Upswing, Experts Say

With an increase of about 5 percent to date, this year's Dax will not even remotely recapture the 30 percent surge in 2003. The financial market survey conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany, among 252 analysts and insitutional investors indicates that this may similarily hold for 2005.

This month's survey revealed predictions averaging at 4,500 points for the Dax in 2005. The majority of experts surveyed by ZEW (54.7 percent) in fact believes the index may reach up to 4,800 points by the end of next year, although at least 4,400. The spread of all predicted outcomes spanning from 2,600 up to 5,750 points suggests a broad range of opinions among experts who were asked to pinpoint their expectations.

The experts questioned were also asked to share their regional preferences regarding financial market investment. Europe was favoured by 56.4 percent, with Germany (21.3 percent), Great Britain (8.6 percent) and 26.5 per cent considering other European states. Japan and a few prospects among the emerging markets as well receive considerable attention. At least as far as the tendencies stated, Japan and China at 10.6 and 7.8 percent, respectively, may already combine to outnumber the United States (17.7 percent) in terms of stock market investments. This assessed, it may be assumed that rather expansive US markets and the weakening dollar are expected to contribute to below average stock market yield abroad in 2005.

For 2005, those interested in bond issues are recommended primarily to consider signing over the short and medium term. According to the experts questioned, a ratio nearing 80 per cent of total investment in bonds should be committed to loans at no more than seven years of remaining time to maturity. Despite historically low interest rates, actual rates of return resulting from bonds are still comparatively well represented and of course, issued at the short term, less affected by eventual rebounds of interest rates. Long-term bonds on the contrary will be significantly affected if interest rates become adjusted to a higher level, without generally granting more substantial returns. Thus, if bond issues can not be exactly maintained up to their final maturity, they are best refrained from over the long term.

Contact

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