EUROPE - Rising unemployment, the strong euro and the prospect of further interest rate cuts could all weigh on investor confidence in Europe in 2003, despite recent positive signs.
Franz Weis, European equity fund manager at F&C Management, said that rising unemployment could continue to weigh on consumer sentiment as the strong euro drag on exports.
And despite the European Central Bank's rate cut in June to 2.5%, further reductions cannot be excluded should clear improvements fail to emerge.
However, he still believes that there are many reasons to be positive about the eurozone in 2004.
Positive factors should more than offset the negative effect on the Continental European economy caused by the strong euro and economic growth should be much stronger across the region in 2004 than this year, said Weis.
Growing confidence should encourage inventory rebuilding, while low interest rates and rising profit margins should give a much needed boost to capital spending. Balance sheets have improved dramatically over the past year, inventories are low, output is steady and there are few signs off excess capacity. Spending and consumption should also pick up as consumers gain confidence and move to take advantage of the low rates.”
Weis thinks that equity markets should also see gains following a good recovery in corporate earnings. F&C remains underweight in tech stocks, food and beverage, insurance and pharmaceutical stocks and is bullish on investment banks.
The fund manager is also adopting a relatively neutral position in European equities, having previously been underweight, with overweight positions in US, Far Eastern and UK equities.
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