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Europe stocks seen leading again next year

Europe stocks seen leading again next year

European stocks beat U.S. and Japanese shares this year, aided by the biggest increases in earnings and takeovers among the world's largest markets, and may lead again in 2007 because they are still cheaper.
"Our analysis is still pointing at Europe," said Nigel Hankin, a manager at Investec Asset Management in London. "Relatively stronger growth and cheaper valuations will tend to favor Europe."
The Dow Jones Stoxx 600 Index rallied 18 percent to a six-year high, beating the gains of 14 percent for the U.S. Standard & Poor's 500 Index and 6.9 percent for Japan's Nikkei 225 Stock Average. The pan-European index ended the year 11 percent from its peak in March 2000.
Deutsche Bank AG, Germany's biggest bank, and BT Group Plc, the UK's largest phone company, led the advance because their profit beat analysts' estimates.
Central and eastern European shares outperformed those in western Europe for a sixth straight year. Morgan Stanley Capital International's Emerging Markets Europe Index, tracking Poland, the Czech Republic, Hungary, Russia and Turkey, rose 31 percent.
Speculation that an end to U.S. interest-rate increases will spur global economic growth helped the emerging Europe index rebound from a 33 percent slump in the second quarter.
Analysts raised 2006 earnings estimates for Stoxx 600 companies throughout the year. Their average forecast climbed 4.9 percentage points from January to 13.9 percent, according to data compiled by FactSet Research Systems Inc.
The prediction for S&P 500 companies rose by 2 points to 14.5 percent, estimates compiled by Thomson Financial show. For members of the Nikkei, the average has increased by 1 point to 13 percent, based on FactSet data.
Earnings growth for the Stoxx 600 is likely to shrink next year to 8.5 percent, FactSet figures show, as higher borrowing costs slow economic expansion. The average estimate for the S&P 500 calls for 9.3 percent growth, according to Thomson.
Economic forecasts suggest Europe may slow less than the U.S. next year. The Organization for Economic Cooperation and Development sees euro-region growth falling to 2.2 percent from a 2.6 percent estimate for 2006. The pace of U.S. expansion may slow to 2.4 percent from 3.3 percent, according to its forecast.
Investors expect the European Central Bank to raise its benchmark lending rate in the first half of next year after six increases in the past 13 months, to 3.5 percent, futures trading shows.
Higher rates "will play against Europe and result in stocks underperforming U.S. shares in the second half," said Christian Dargnat, chief investment officer at BNP Paribas Asset Management in Paris.


Updated : 2021-05-16 15:25 GMT+08:00