ZEW Financial Market Survey 2006 – Financial Market Experts Expect Moderate DAX Increases in the Coming Year

In 2005, the German share index DAX grew by 1,000 points, which corresponds to a relative increase of 23 per cent. By contrast, the 2006 gains of the DAX will turn out rather moderate. These are the findings of a survey among 282 financial analysts and institutional investors conducted by the Centre for European Economic Research (ZEW), Mannheim, within the framework of the ZEW Financial Market Survey in December 2005.

On average, the experts interviewed by ZEW expect a DAX level of about 5,600 points by the end of 2006. A majority of 53 per cent forecast index levels ranging between 5,400 and 5,800 points at year-end. Encouragingly, the analysts assume that the upward trend will last and that the 2005 increases will presumably suffer no correction phase.

With regard to the ideal investment portfolio by country, the experts prefer Germany and the remaining euro zone (each about 24 per cent). At 16.1 per cent, the USA account for a major part of the portfolio as well. Compared with 2005, the investors' interest in Japan has risen significantly. Japan currently makes up 14.3 per cent of the portfolio against 10.6 per cent in last year's survey. Displaying a share of approximately seven per cent each, China and Great Britain are equally weighted. Hence, investment to the Chinese market is still considered rewarding despite its limited transparency.

In 2006, the share of bonds in the experts' portfolios will presumably make up an average of 41 per cent with a majority of almost 63 per cent inclining towards a smaller share. In this context, they were asked how the proportion of bonds would change relative to 2005. Since bonds are a safe way to invest, changes in bond preferences make it possible to draw conclusions about the changes in investors' risk aversion. The answers to this question show that 37.3 per cent of the experts plan to reduce the share of bonds, whereas only 14.4 per cent intend to increase it. Risk aversion thus seems to have slightly weakened. At the same time, however, the result is influenced by the positive expectations concerning future equity returns.

Contact

Dr. Sandra Schmidt, E-mail: s.schmidt@zew.de