A weak economic recovery, bad company news and rising oil prices are some of the reasons for the falling stockmarkets. Oil prices have soared, with Brent crude oil rising to nearly $38 dollar a barrel on May 17th. This is pushing up inflation and prices increased 0.7% in March in the euro-zone area, the highest rise since January 1999. Economists have increased their 2004 inflation estimates for the euro-zone to 1.7% from 1.6%.
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Fund managers are, however, more positive on Europe than some of the other developed markets. According to the latest European Fund Trends survey, 12% of fund groups said Europe will be the best performing stockmarket over the next 12 months while only 4% favoured America.
Shares outlook
Gartmore, a fund group, said in a recent report: “We believe the outlook for the equity [share] market is moderately positive, driven by corporate earnings rather than economic fundamentals, but we are concerned that some valuations have become particularly stretched.”
News is mixed from companies in Europe. Shares in Alitalia, an Italian airline company, fell because of balance sheet problems. Nokia announced a 2% fall in sales in the first quarter, compared with expectations of a 3-7% increase. In April it was announced that Sanofi-Synthelabo and Aventis merged to become the largest pharmaceutical group in Europe and the third on a global basis.
Uncertainties regarding the stockmarkets in continental Europe made some investors review their underweight positions in British shares.
“We expect UK rates to rise over the course of the year reflecting the pace at which the global economy is expanding and the persistently high level of consumer debt in UK,” said Gartmore.
“However, we believe there is solid support for UK equities at this level, in part due to the prospect of further industry consolidation, and we have raised exposure” [to the country].
