With economies on both sides of the Atlantic in recession, equity markets are taking a six- to nine-...
With economies on both sides of the Atlantic in recession, equity markets are taking a six- to nine-month view. With that kind of a time scale in mind, the outlook for European equity markets is quite positive. Supported by easing monetary policy on both sides of the Atlantic and stimulation from the US government, both the European and US economies are set to recover around summer 2002.
There is a fair chance this recovery will be a gradual one, in the sense that imbalances in the US economy will hamper a rapid, V-shaped recovery and this will be reflected in the European economies' recovery also. This should not be viewed as a negative as this will give more scope for rather stable but accelerating economic growth, without running the risk of tension building up within the European economy.
After the strong slump in profits in 2001, corporate Europe did not adopt a waiting attitude and there have been significant moves to reduce labour forces across all sectors in Europe. This is partly because business conditions worsened severely, such that the survival of businesses were at stake (especially in tech and telecoms) and partly because capital markets demanded a proactive stance in worsening macroeconomic conditions.
We believe that the period of sharp reductions in European share prices experienced since summer 2000 ended last September. After an upward correction during October and November, we believe we are set for a solid, growth-titled equity market, where industry winners will be the winners in stock markets as well.
Wijgert Verstoep is vice president of ABN AMRO Asset Management
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