ZEW Survey Among Financial Market Experts: German and U.S. Stock Markets with Little Potential for Growth in 2008 // Exchange Rate of 1.44 Dollar for One Euro Expected at the End of 2008

For the leading indexes of the German and the U.S. stock markets, Dax and Dow Jones, a rather lower potential for growth can be expected until the end of 2008. At the same time, the Euro will maintain its strength during the next year. This is the result of a current survey among about 230 financial market experts conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany

On average, the surveyed analysts expect a level of 8,156 points for the Dax, which just recently passed the 8,000-point mark, and a level of 13,525 points for the Dow Jones. For the Dax, this estimation would correspond to a stock price growth rate of 1.95 per cent compared to a level of 8,000 points. With a current level of 13,600, the Dow Jones would even lose value. These are poor prospects, if one considers that during the current year, the growth rate of the corporate stocks listed at Dax was about 21 per cent and the companies listed at Dow Jones were able to grow nearly nine per cent.

The distribution of the answers around the calculated means, however,  was not symmetric. The estimations on the expected level of the Dax with 35 per cent most frequently fell in the interval 8,400 and 8,600 comprising. For the Dow Jones the answers cent with 22 per cent concentrated within the range between 13,800 and 14,100 points comprising.

In addition, the experts also gave their assessments regarding the price-earnings ratio (PER) of the two stock market indexes at the end of 2008. They estimate that the Dax’s PER on average will be at 14.2 for 2008; stocks of the Dow Jones should cost slightly more with 16.3. The experts thereby believe that both stock market indexes will be more expensive compared to 2007, since the current PER is estimated to 13.3 for the Dax and 15.5 for the Dow Jones.

To estimate the foreign exchange risk of investments in U.S. stocks, the experts were asked on their expectations regarding the development of the exchange rates. Concerning their assessment, at the end of 2008 one euro will be worth 1.44 dollar. With a current exchange rate of 1.47 dollar, the U.S. currency will stay weak.

The experts were also asked on their weighting of the asset classes U.S. stocks, resource stocks, and sovereign bonds in their portfolio for 2007 and 2008. The calculation of the alterations comparing both years shows, that the experts will lower their share of U.S. stocks by on average 1 per cent during the next year. Likewise, resource stocks will be weighted 0.35 per cent less. Whereas, next year sovereign bonds will be increasingly used as a safe haven, since the portfolio weighting for this asset class will increase by 2.21 percentage points.

Contact

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