Leading stock market indexes such as the Dow Jones Industrial Average, Nikkei and DAX have the potential to hit new yearly highs before the end of 2007, German wealth managers GECAM said.
The U.S. Federal Reserve will cut interest rates again soon to prevent sustained damage at financial sector players, GECAM fund manager Helmut Knestel said in a report on Monday, creating liquidity which will flow at least in part into equities.
Knestel shares responsibility for the portfolio strategy of GECAM's five funds-of-funds with a total of 220 million euros in assets under management.
"Once country indexes such as the DAX, the Nikkei and the Dow have ended their current consolidation, new year highs should be possible," Knestel said, citing low real interest rates and moderate valuations.
"We will use nervous days to buy stocks outside the financial sector," he said.
At Friday's close, the Dow was 4.4 percent below its year- and all-time high of 14,198.10 points from October 11. At 12:20 p.m. British time, the DAX stood at 7,820.40 points, or 4.2 percent below its year and lifetime high set on July 13.
The Nikkei's close at 16,268.92 points on Monday is 12.5 percent off its year high of 18,300.39 set on February 26.
Knestel said an end to the rise in emerging stock markets was not in sight, even though Chinese equities looked "excessively expensive" after their advance since July-August.
The Fed had signalled in connection with its quarter-point key rate cut on October 31 that no further monetary policy easing lay in store before year end, Knestel said.
"But in our view, a further U.S. interest rate cut will in any case be necessary soon to protect borrowers and lenders from sustained damage," he said.
Beneficiaries of the high crude oil price such as energy stocks and Russia funds continued to offer lucrative prospects, due to low U.S. inventories, political tensions in the Middle East and speculative trend followers, Knestel said, noting crude could rise above $100 per barrel.
GECAM Global Funds had increased its exposure to those asset classes as well as to gold in August and expected a strong performance, he said. ( Reuters )