Good results and low interest rates spur European bourses

Investors believe the upswing is starting to fade

print this

Europe, once a laughing stock of serious investors, has since become the new stock market hotspot.
      On the Helsinki Stock Exchange, for one, the so-called HEX-portfolio index has risen over 20 percent from the beginning of the year.
      Also the Paris Exchange has reported a rise of no less than 17 percent, equalling that of the German market, once thought to be the sick man of the Euro area. The Frankfurt DAX is now riding 30% higher than 12 months ago.
      How did all this come about?
      Petri Ukkola of Tresor Investment Management issues the reminder that the stock price upswing has continued in Europe for some two years now. The bottom of the slump took place in the spring of 2003, after the burst of the techno bubble.
      "Today European companies are on a roll. This year's second quarter results were substantial to say the least", Ukkola confirms.
     
The company profits alone cannot explain the latest upswing. The rates are also propped up by the exceptionally low interest level and the depreciation of the euro when compared to the US dollar.
      The European export companies, in particular, profit from the cheaper euro.
      According to Ukkola, the fact that investors' confidence in the stock market has strengthened also plays a role.
      "Already two years ago, companies produced reasonable results, but at the time there was fear of the type of deflation that has bothered the Japanese market for ten years now", Ukkola says.
      By deflation he refers to the downward trend of consumer prices that shrinks businesses' profit margins.
     
The latest fear has been a sudden rise in the price of oil. According to Ukkola, however, the price of oil is already yesterday's news.
      "Investors have noticed that the high oil price does little to slow down the economic growth. But for sure we will still keep an eye on the oil price", Ukkola points out.
     
The stock prices are also partly sustained by the fact that more and more money continuously flows into the investment market. The German asset management firm Allianz has produced an estimate according to which the Europeans' pension funds double in ten years. The most profit for these funds has traditionally come from stock investments.
     
The Finnish State Pension Fund's stock portfolio is worth no less than EUR 3 billion, 28 percent of which has been invested in Finnish stock.
      According to some experts there are already signs of slowing down in the European market growth. "When some expect a backlash, others may use this as an opportunity to buy more", Ukkola says.
      On the Helsinki Exchanges, Tuesday saw a slight decline amidst light trading, in spite of the release of excellent figures and end-of-year forecasts from national carrier Finnair. The airline's stock surged 8.5% to reach a 7-year high.  


Links:
  Helsinki Exchanges
  The State Pension Fund
  Allianz

Helsingin Sanomat