Market Opinion
July 3 2005
Equities
Best FTSE Forward - article ID 4235
Despite the lacklustre performance by US equity markets, the UK FTSE continues to exhibit upside momentum - something which we first highlighted at the beginning of the year, when the index was trading around the 4,800 mark. Having closed the week above 5,150, the market can push higher towards resistance in 5,400 region over the coming weeks.
A weaker currency and the potential of lower interest rates could well boost valuations going forward. A similar story is unfolding in Germany, where a weaker euro and the low refinancing rate are helping exporters’ bottom line, and thereby lifting share prices on the DAX index. Furthermore, sentiment is being buoyed by the potential for mergers and acquisition activity in the European banking sector in the wake of Bank of America’s agreement to buy credit card lender MBNA.
We have been bullish the DAX since the break of 4,410, and see further gains for the index from its current level of 4,630 towards the 5,400 level over the next 12-18 months. A key risk comes from a spike in the price of oil. In this event, we see good support for the DAX in the 4,400 region.
As for the Far Eastern markets, readers will know that we have shown bullish tendencies towards the Nikkei of late, suggesting on May 8 that the index could bounce through 11,500, from 11,200. Having hit a high of 11,663 last week, upward momentum could be sufficient to drive the market to key resistance in 11,850 area. Helping the Nikkei was a better-than-expected Tankan survey for June, with profit growth forecasts for both small and medium-sized companies and large manufacturers being revised up from 0% to 2.7%. If the Nikkei can break above 11,850, and then 12,000, the market would be set for major gains over the coming years, possibly to as high as 15,000.
Elsewhere in the region, our optimistic stance towards the Hang Seng was slightly misplaced. However, we still believe there is medium-term upside potential. In the short-term though support levels to watch are 14,100 and 13,800.
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