Europe shares seen overcoming stimulus concerns, hitting new highs

European shares are expected to rise six to seven per cent from now until end-year, taking concerns about any scaling back in aggressive monetary stimulus around the globe, Reuters polls showed yesterday.

The consensus view from around 80 strategists found the pan-European STOXX 600 index will rise around six per cent from now to 310 points by end-year – a level last seen in mid-2008 – and then go on to hit 326 points by mid-2014.

The eurozone’s blue-chip Euro STOXX 50 index was forecast to rise seven per cent from current levels to 2,900 points by the end of 2013 – last seen in mid-2011 – and then up to 3,010 points by middle of 2014.

The European equity rally, which started in mid-2012 after European Central Bank President Mario Draghi pledged to do “whatever it takes” to protect the euro currency from the region’s debt crisis, has faded over the last three weeks.

That’s happened because policymakers at the US Federal Reserve said they had discussed when the central bank might start to wind down the scale of the asset purchases that helped spur a world stock market rally.

Despite this, those polled felt equities would continue to benefit as those stimulus measures and interest rate cuts have hit bond yields, forcing investors towards the better returns on offer from shares.

“The underlying story is not really accelerating global growth but more asset reflation and the fact that equities are by far the most reasonably priced asset class, the only one with positive real prospective returns,” said JP Morgan’s Emmanuel Cau.

The median finding from the poll forecast that Germany’s benchmark DAX would hit a record high of 8,662 points by the end of 2013, up around five per cent from current levels, before then going on to reach 9,000 by the middle of 2014.

All the year-end forecasts were broadly in line with expectations in the March poll, with the France’s CAC 40 as the one exception.

Analysts think it will lag its European peers, rising four per cent from current levels to 4,025 points by the end of the year, implying it was not expected to recover back to its May 2013 peak of around 4,070 points.

The latest findings of the Reuters survey also show that the end-2013 expectations for France’s CAC had been scaled back from a previous poll in March, when the CAC was forecast to hit 4,100 points by the end of 2013.

The respective performance expectations are backed up by economic fundamentals. Data this month showed German growth picked up in the second quarter, while in contrast France is not expected to return to pre-crisis growth levels any time soon.

Milan’s FTSE MIB will rise about five per cent from now to the end of 2013, but the performance will be affected by ECB moves and by the recovery of Italy’s economy.

The index, which closed yesterday at 16,194.14, could rise to 17,025 by the end of this year and add more gains in the first half of 2014 to reach 17,925 by mid-June.

Overall those polled were bullish on European equities in spite of the region’s lingering economic troubles.