european shares set to fall for 4th year -merrill

  1. 1,200 Posts.
    Interesting read; In the last two weeks I have't many negative news items and IMHO spin-doctors world wide have been working overtime cream-puffing news. An example in point is the recent Intel headlines about "profit doubling".. double of nothin is nothin!

    European shares set to fall for 4th year -Merrill
    Tuesday January 14, 8:57 am ET
    By William Kemble-Diaz

    LONDON, Jan 14 (Reuters) - European stock markets are set for a fourth straight year of losses, strategists at Merrill Lynch said on Tuesday.
    "The equity bear market in Europe is not over," Michael Hartnett, the investment bank's director of European equity strategy said in a presentation to journalists.

    Hartnett said he saw the euro zone DJ Euro Stoxx 50 (Zurich:^STOXX50E - News) falling almost nine percent from current levels to 2,300 points by year-end, and forecast a 1.3 percent dip in the FTSE 100 index (London:^FTSE - News) of leading British shares to 3,900 over the same period.

    The Euro Stoxx 50 fell 37 percent in 2002, 20 percent in 2001, and 2.7 percent in 2000. The FTSE 100 fell 24.5 percent last year.

    Hartnett said shares in Europe, while currently better value than those in the United States, will struggle to make much headway because company earnings were likely to disappoint.

    Excluding the volatile insurance and technology sectors, where many firms are seen turning a loss into a profit, consensus expectations are for a 13 percent pickup in European company earnings this year.

    "We think nought to five percent is more plausible, which would leave shares on about 17 times 2003 earnings, which is not that attractive," Hartnett said.

    The absence of both "value" and "momentum", using financial parlance, meant there was no basis for a European bull market, Hartnett said.

    Merrill's chief global investment strategist, David Bowers, speaking on a video link from New York, denied he and other leading members of the global investment banking industry were erring on the side of caution, having underestimated the bear market and wrongly forecast positive returns in 2001 and 2002.

    He said there was always a risk of getting it wrong but added that there was still too much optimism in the market, citing recent fund manager surveys and investor straw polls.

    Bowers' central argument was that companies were still working off growth-inhibiting imbalances built up in recent years -- namely a combination of too much debt, too much capacity, and too little pricing power.

    "The rebuilding of corporate balance sheets could dominate the global climate for another four to six quarters at least," he said.

    And at an operational level, Europe was still way behind the U.S. in terms of restructuring, because unit labour costs were still rising, Hartnett said.


    Strategists at Merrill Lynch said they expected defensive energy, utility, consumer staple stocks to outperform the rest of the market.

    The need for predictable earnings and good dividend yields also favoured the UK over euro zone markets, even though the European Central Bank was seen slashing interest rates more sharply over the course of this year.

    Benchmark euro zone rates are likely to come down by at least another half a percentage point to 2.25 percent, according to Merrill Lynch, which expects the Bank of England to shave 25 basis points off UK interest rates this quarter before embarking on an agressive tightening phase in the second half of 2003.

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