ZEW Financial Market Test – Experts Expect DAX to Grow by 5 Per Cent in 2007

The financial market experts interviewed by ZEW expect the German share index (DAX) to increase by 5 per cent in the coming year. The potential of the US-American index Dow Jones is to lie at merely 2.5 per cent.

On the occasion of the turn of the year, ZEW asked the participants of the ZEW Financial Market Test whether it will still be worthwhile to invest in shares next year. Now, at the end of 2006, the global equity markets seem to be in top form. Since the beginning of the year, the German DAX has grown by approximately 19 per cent, the US-American Dow Jones by 15 per cent.

According to the interviewed financial market experts, stocks will remain an attractive form of investment in 2007, even if the profit opportunities of equity investment will be below this year’s level. The analysts expect the German share index to close on an average of 6.700 points. This would signify a growth rate of 5 per cent compared the forecasted year-end closing of about 6.400 points in the December 2006 survey. The prospects for American shares appear slightly worse. Although the interviewed financial experts see the potential of the Dow Jones to reach up to 12.600 points by the end of the year, the corresponding stock price gains of 2.5 per cent would lie below those of the German stock market.

The financial experts were also asked to assess the shares. German stocks were reasonably evaluated with a price/earnings ratio (PER) of about 13.9 per cent. Displaying a PER of 21.2 per cent, US-American stocks are rather expensive. In the course of 2006, German as well as US-American companies recorded a double digit increase in growth rates; the earnings estimates for 2007 are similarly positive. For this reason, ZEW asked the financial experts about the development of the assessments in the coming year. In this context, a slight convergence of the evaluations across countries can be noted: The PER of shares listed on the DAX is expected to slightly increase to 14.3, whereas the PER of US-American stocks will likely drop to 17.3 points.

The last question focused on the optimal allocation of a stock portfolio according to branches. At 13 per cent, financial service providers constitute the largest share of the representative portfolio, closely followed by energy and chemicals industry (11 per cent each). Displaying a share of 9 per cent each, the sectors information technology and mechanical engineering rank in the mid-range. The construction industry, electrical engineering and telecommunications each make up 8 per cent of the portfolio. The financial experts attach the least importance to the car manufacturing sector as well as consumption and trade (7 per cent each).

Contact

Prof. Dr. Michael Schröder, Phone: +49 (0)163/6235140, E-mail:schroeder@zew.de