European shares are poised for further gains in 2013, a Reuters poll of investors and analysts showed, with many expecting the economic backdrop to improve as the region's sovereign debt crisis eases. The euro zone's bluechip Euro STOXX 50 index is seen rising 10 percent from Wednesday's close to end 2013 at 2,883.5 points, a level last seen in the first half of 2011, according to the poll of almost 50 market watchers taken in the past week.
The pan-European STOXX 600 index is expected to rise close to 9 percent to 305 points by the end of next year, taking it to five-year highs. Traders said pledges by the European Central Bank (ECB) to buy sovereign bonds to lower borrowing costs for debt-ridden countries had reduced the risk of a major economic implosion in the region, although worries over the debt crisis remained.
"We expect some stabilisation in euro zone activity," said J.P. Morgan European equity strategist Emmanuel Cau, adding that because others were not as optimistic, any improvement could lead to a sharp rally in European equities. "Money supply is starting to pick up, and that's a very good leading indicator of the activity." The quarterly survey of over 50 fund managers and analysts gave a range of 2,300-3,080 points for the end-2013 level of the Euro STOXX 50 index, and a range of 270-330 points for the STOXX 600 index.
This indicated that even those with the most negative forecasts still expected European equities to do no worse than hold current levels, with the Euro STOXX 50 up around 14 percent so far in 2012 while the STOXX index has risen 15 percent. "We expect European markets to continue their recent relative outperformance," said Chris Wyllie, chief investment officer at London-based wealth management firm Iveagh. Among the sectors, banks were seen continuing their outperformance into 2013, with the STOXX 600 European bank index having risen more than 20 percent so far this year.
Investors also backed stocks with good overseas exports, such as French luxury goods companies LVMH and PPR . Defensive stocks such as healthcare company Novartis were also highlighted. Regionally, those polled had mixed views over whether investors should favour the cheaper "periphery" equity markets of Spain and Italy or the economically stronger core northern European ones such as Germany's DAX.
Germany's DAX is up by around 30 percent since the start of 2012, beating a 15 percent gain on the French CAC 40 and a 4 percent rise on Italy's FTSE MIB index, while Spain's IBEX is still down by around 7 percent. "Stick with the core over the periphery, that's our general view," Goldman Sachs strategist Peter Oppenheimer told reporters at a briefing this week. However, J.P. Morgan's Cau argued that, given the strong German performance already, the DAX offered more scope for disappointment and looked expensive relative to the periphery.