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A weak rally in Europe

In the last month, Msci Europe rose 1,39% (in euro). Financial, telecom, media and technology sectors had good performance. Fund manager are worried about the strength of euro and they hope that ECB will cut the rates.

Sara Silano 05.06.2003
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After April rally, European stock exchanges had little gain in May. Msci Europe index rose 1,39% in euro (to 3rd of June), more than Msci World index (+1,03%). European equity markets moved higher as Wall Street rallied and quarterly corporate earning were quite good. The strength of euro and weak economy act as a restraint.

Most important European stock exchanges rose more than 1%. Only Msci Italy gained only 0,03%. The market mover sectors were financials and TMT (telecom, media and technology). The energy sector was not very good due to oil price falling as the supply outlook improved with the regime falling in Iraq.

Stock mar

kets were be-influenced by euro appreciation. Cross Euro/dollar was up near 1,20 during the month and now it is near 1,17 (to 3rd June). During G-8 meeting, France president, Jacques Chirac, underlined the importance of the currency market stability.

Strength of euro is a problem for European economy. According to Eurostat, in the first quarter German GDP fell 0,2% and Dutch GDP fell 0,3%. France GDP rose 0,3%. According to Istat (Italian statistical institute), Italian GDP fell 0,1% in the first quarter. According to Eurostat, inflation went down (1,9% in May against 2,1% in April).

As economy is weak and inflation is low, money managers and analysts hopes that ECB cut rate in the meeting of 5th June. Some analyst expect that ECB will move by 25 basis points, other said that ECB will move by 50 bp. ECB cut rates last time in March, when it decreased rates to 2,5%.

Outlook

According to the May issue of Morningstar European Fund Trend Survey, the Fund Managers feel quite pessimistic for the performance of the European stock market performance over the next 12 months compared with USA and Asia ex. Japan. In May only 12% of the fund groups say that Europe (ex UK) will be the best performing market compared with 23% of the votes been given to USA region and 31% to Asia ex. Japan.

According to Fortis Investment Management report, “European stocks are undervalued compared to bond valutions. Stock prices are relative expensive compared to earning (Price/earning), but the dividend yields are at attractive level”.

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Sara Silano

Sara Silano  è caporedattore di Morningstar in Italia

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