Tuesday, 17 March 2015 02:22
LONDON: Germany’s DAX raced to record highs on Monday, part of an extended European stock market rally driven by investors’ expectations that a weakened euro will boost the region’s economy and lift exporter earnings.
The European rally also pushed up Switzerland’s SMI equity index back towards levels last seen in January, before the Swiss National Bank (SNB) abandoned a three-year peg holding the value of its currency to 1.20 francs per euro. That move had sent the franc soaring and the Swiss share index tumbling. Fabrizio Quirighetti, head of multi-assets and fixed income at Swiss bank SYZ, said a stabilisation in the franc on currency markets had benefited Swiss companies with big overseas exports.
The DAX, which unlike many other European equity indexes factors in returns from dividends, closed up 2.2 percent at 12,167.72 points, smashing through the 12,000-point level for the first time.
The pan-European FTSEurofirst 300 index rose 1 percent to 1,594.70 points, its highest since late 2007, while Zurich’s SMI rose 0.9 percent to 9,237.08 points – its highest since the SNB ended its currency peg in January.
The DAX and other European stock markets have been lifted by the European Central Bank’s launch of a one trillion euro money-printing scheme aimed at boosting economic growth in Europe.
The programme has weakened the euro and pushed bond yields to historic lows, driving investors to seek the better returns available from the stock market.
Although the single currency recovered slightly on Monday, it has still lost about 25 percent of its value against the US dollar since May last year. “The unrelenting rally in European shares continues, helped by the weak euro and improving economic data.
There is no reason right now to lighten up and I continue to be a buyer,” said Hampstead Capital hedge fund manager Lex Van Dam.
Siemens was one of the top DAX performers, rising 2.4 percent to its highest level in around seven years after the German engineer won some Egyptian contracts.
Italy’s FTSE MIB equity index also rose 1 percent to 22,930.92 points, a four-year high. Shares in Lafarge fell 6.3 percent and Holcim dipped 1.3 percent, however, as the two cement majors argued over the terms of their planned merger.
The Greek stock market also underperformed, declining 0.9 percent due to lingering concerns over how the country would tackle its debt agreements, with Germany’s Finance Minister issuing new criticism of the Athens government.
Many investors were looking towards the US Federal Reserve’s two-day meeting that begins on Tuesday. Strong US jobs data have bolstered expectations that the Fed will point towards a June rate rise. Those expectations have strengthened the US dollar, causing some investors to fret about the potential impact on US corporate earnings compared with those in Europe.
“Europe is still the place to be,” added Gary Paulin, co-founder of equity brokerage Aviate Capital.
Copyright Reuters, 2015