Despite the uncertainty in global stock markets, some of the countries in the eurozone have prospere...
Despite the uncertainty in global stock markets, some of the countries in the eurozone have prospered in recent months.
Even Germany managed to shrug off its structural and economic problems to outstrip its peers and become the best-performing eurozone country in April. According to Davina Curling, manager of the £11m Isis European Prime fund, although Germany is still the 'sick man of Europe', its equity market has done well in recent weeks.
'Some stocks have outperformed strongly,' she says. 'We closed our negative bet on Germany just before the rally as the stock market had fallen so far it was offering genuine value in many areas.'
As with many of the other regions that have experienced a strong post-war bounce, however, the big question is whether the rally in Germany and the rest of the eurozone can be sustained.
'When you get a turnaround in sentiment to the point at which the market is going to go up, the high-risk stocks and poorly-performing companies often do much better,' says Curling.
As a result, she adds, a good deal of the easy money has already been made in the technical rebound seen in the German stock market and the economy is still in negative territory.
'The market is up nearly 20% to the end of April since we closed our underweight bet in mid-March,' Curling says. 'This compares with a rise of just over 6% for the European market as a whole.'
Although the strength of the euro is another negative for Germany, Curling believes investors should try to look through the less-than-exciting news in the second quarter and take a more positive long-term view.
'Looking ahead, we see a glimmer of hope and expect the ECB to cut interest rates further,' she says. 'We also expect to see some signs of a rebound in the economic environment towards the end of the year as the US economy picks up.'
Sarida Hasan, global economist at Henderson Global Investors, also expects the ECB to cut rates later this year and sees the main reason for the weakness in the German economy as poor domestic consumer demand.
'Germany was the weakest economy in the eurozone in 2002 but the last three months of the year were flat quarter-on-quarter, which was surprising as we believed it would go into negative territory,' she says.
Hasan believes the industrial sector has been hurt by exports, which have in turn been affected by a strengthening euro. 'Exports have been a key driver of growth, while consumption has held up well,' she concludes.
German auto manufacturer Porsche was a drag on performance for GAM European Growth in the first quarter, according to manager John Bennett. One of the fund's largest holdings, the stock has fallen 19,73% in euro terms from the end of December to the end of May as investors questioned the strength of its core franchise.
However, an underweight position in financials has been a positive contributor to outperformance, Bennett says.
Looking at the broader picture for Europe, Govett European Strategy manager Peter Kysel expects European gross domestic product growth of around 1% in 2003 and anticipates a recovery of corporate earnings and economic fundamentals, with further improvements next year.
Germany best eurozone market in April.
ECB expected to cut interest rates.
US recovery to boost eurozone.
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