Outlook for European equities still good, says Citigroup exec

Euro not a big worry, interest rates flat from June

 

The medium-term outlook for European equities is still good, though stock markets are unlikely to rise as fast as they did in 2006, Jürgen Michels, Director of the Economic and Market Analysis at Citigroup Corporate and Investment Banking, told the Financial Mirror on Tuesday. Michels was in Cyprus to speak at the annual forecasting event of the CFA Society of Cyprus.

Though underlining that there remain a number of risks, Michels said that Europe’s equities are supported by a strong outlook for export growth.

In recent years the export side of Europe has become “less dependent on the US than it was before,” he said, and demand in emerging markets has become more important.

Europe is well placed to take advantage of demand in the Far East and oil-exporting countries too because of the “huge amount of capital goods” which Europe exports.

 

Euro strength not seen as a big worry

 

Michels is not too worried by the strength of the euro. Historically you have to have “quite a substantial increase in the exchange rate for it to have a sizeable impact”, he said, adding that “volume is much more important”.

A strong euro could act as a cap on growth but “is unlikely to create a sharp deceleration in exports”.

Michels expects interest rates to flatten out after the European Central Bank’s next expected rise of 25 basis points in June because eurozone inflation was still less than 2% even after 80-90% of the VAT increase in Germany had been passed on.

Despite interest-rate rises, German businesses are investing heavily and consistently outstripping expectations.

“The upcoming changes in corporate taxes have acted as a big incentive to spend in 2007,” said Michels.

“We are very pleased that Mr Michels was able to talk to us today about the European economy of which we are now an integral part,” said Constantinos Papanastasiou, Head of Corporate Finance at CISCO and President of the CFA Society of Cyprus.

“One of the advantages of the CFA Society is that it gives members the opportunity to improve their performance through sharing knowledge with other members. I am very pleased that the CFA Society of Cyprus is contributing to this aim through its Third Annual Forecast Event today.” FM