Wednesday, September 12 14:14:27
European shares hit a 14-month high today after Germany's top court allowed the ratification of the euro zone's new bailout fund under some conditions, with analysts saying that the market had potential to move substantially higher from here.
The court said Germany could ratify the European Stability Mechanism (ESM) and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliament's approval.
Approval of the ESM is a vital part of a European Central Bank plan to defuse the debt crisis by buying struggling peripheral countries' bonds in the secondary market. Shares have surged about 10 percent since ECB President Mario Draghi pledged in July to take all necessary steps to protect the euro zone.
"It's a confirmation that Germany is engaged in the project to rebuild and reconstruct Europe. There is a kind of Draghi economics going on. There is a clear receding risk of a euro break up and people are readjusting their portfolios," said Didier Duret, chief investment officer at ABN-AMRO Private Banking, which manages more than $200 billion.
ABN-AMRO adjusted its portfolio on Friday to have an "overweight" stance on global equities by mostly investing its cash holdings to buy European financials and industrials. It changed its stance to became "neutral" on European financials from "underweight" and strengthened its "overweight" position on industrials. Its balanced portfolio now accounts 46 percent bonds, 35 percent equities and 6 percent cash.
Duret saw an 8 to 10 percent upside potential for the euro zone's blue chip Euro STOXX 50 index by the end of the year. The index was up 0.8 percent at 2,577.60 points.
Analysts at Goldman Sachs also said markets could rise from current levels, thanks to policymaker support, but were unlikely to do so if economic data failed to show signs of improvement.
At 1112 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,109.93 points after rising as far as 1,115.90, its highest since July 2011.
Germany's DAX was up 0.7 percent, Spain's IBEX rose 0.8 percent and Italy's FTSE MIB gained 1.1 percent following the German court ruling. (C ) Reuters