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July 18 (Bloomberg) -- European stocks fell for a second day as concern deepened investments in subprime mortgages will hurt financial companies and disappointing reports from Intel Corp. and Yahoo! Inc. pushed technology shares lower.

UBS AG and Allianz AG retreated after Bear Stearns Cos. told investors there's little value left in its two failed hedge funds. STMicroelectronics NV, Europe's largest semiconductor marker, slid to a five-week low. Bayerische Motoren Werke AG and Siemens AG paced declines among exporters as the dollar fell to a record low against the euro.

``The market will take this warning from Bear seriously,'' said Marc Renaud, general director at CCR Actions in Paris, which oversees $6.9 billion in stocks. ``Technology stocks continue to disappoint. The euphoria is breaking apart.''

Financial stocks have paced declines in Europe in the past month after Bear Stearns said in June mounting home-loan defaults reduced trading revenue in the second quarter. The Dow Jones Europe Stoxx Financial Services Index has tumbled 3.5 percent, more than four times the losses for the broader market.

Energy shares including BP Plc and Total SA declined after crude oil dropped from an 11-month high yesterday.

Europe's Stoxx 600 Index lost 0.7 percent to 394.89 at 10:15 a.m. in London. The Stoxx 50 slid 0.8 percent, and the Euro Stoxx 50, a measure for the euro region, fell 1.1 percent.

National benchmarks sank in all 17 western European markets that were open. The U.K.'s FTSE 100 retreated 0.8 percent. France's CAC 40 lost 1.1 percent and Germany's DAX declined 1.7 percent.

`No Value'

UBS, Europe's biggest bank, lost 1 percent to 72.95 francs. ING Groep NV, the Netherlands' biggest financial-services company, slid 1 percent to 32.91 euros. Allianz, Europe's biggest insurer, sank 2.1 percent to 169.18 euros.

Bear Stearns told investors in its two failed hedge funds that they will get little if any money back after ``unprecedented declines'' in the value of AAA-rated securities used to bet on subprime mortgages.

Estimates show there is ``effectively no value left'' in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and ``very little value left'' in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter.

``Investors should see it as a wake-up call to trim some risk from their portfolios,'' said Kevin Lyne-Smith, who helps oversee $100 billion as managing director at Julius Baer Holding AG's private-banking division. ``The situation will get worse before it gets better.''

U.S. Treasury notes rose, pushing benchmark yields to a one- week low, as the Bear Stearns losses prompted investors to seek the relative safety of government debt.

STMicroelectronics, Infineon

STMicroelectronics, Europe's biggest chipmaker, slid 1.4 percent to 14.09 euros. Infineon Technologies AG, the region's second-largest, dropped 1.5 percent to 13.09 euros.

At Intel, the world's biggest computer-chip maker, discounts by competitor Advanced Micro Devices Inc. have put pressure on prices, Chief Executive Officer Paul Otellini said. That's cut into Intel's gross margin.

Yahoo!, the most-visited U.S. Web site, forecast sales for the year of $4.89 billion to $5.19 billion. Analysts in a Bloomberg survey had expected $5.18 billion, higher than the midpoint of Yahoo's forecast. The company reported second-quarter profit fell 2.3 percent as Google Inc. extended its lead in the Internet search queries and new rivals took sales in display advertising.

BMW, the world's largest maker of luxury cars, sank 2.4 percent to 47.80 euros. The company makes 25 percent of its sales in North America. Siemens, Europe's biggest engineering company, decreased 1.9 percent to 105.64 euros. The company makes 20 percent of its revenue in the U.S.

All-Time Low

The dollar fell to an all-time low of $1.3833 against the euro from $1.3781 in New York yesterday. The hedge fund losses fanned speculation investors will spurn U.S. assets as the economy slows.

BP, Europe's second-largest oil company, lost 1.1 percent to 599.5 pence. Total, the region's biggest refiner, slid 2 percent to 60.38 euros.

Crude oil was little changed in New York after retreating from an 11-month high yesterday on speculation that U.S. gasoline supplies rose for a third week as refiners increased output.

J Sainsbury Plc gained 1.4 percent to 593.5 pence. The U.K.'s third-largest supermarket chain said it received a bid approach from Delta (Two) Ltd., a Qatar-backed fund. The ``preliminary'' approach ``may or may not lead to an offer being made,'' Sainsbury said.

Richemont, Accor

Cie. Financiere Richemont AG dropped 1.4 percent to 76.45 francs. The world's second-biggest luxury-goods company said first-quarter revenue climbed 9.1 percent to 1.27 billion euros ($1.8 billion) as Russian and Chinese shoppers bought Mont Blanc and Piaget watches costing as much as $69,000. Revenue growth excluding currency fluctuations matched the 15 percent median estimate of seven analysts surveyed by Bloomberg.

Accor SA slid 1.9 percent to 68.85 euros. Dresdner Kleinwort cut its recommendation on shares of Europe's biggest hotelier to ``add'' from ``buy,'' citing a slowdown in U.S. sales.

ASML Holding NV climbed 1.6 percent to 21.53 euros. Europe's largest maker of semiconductor equipment forecast machine bookings will rise in the second half after orders fell to the lowest in eight quarters as customers scaled back expansion plans.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net .

Last Updated: July 18, 2007 05:35 EDT

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July 17, 2007

Too Late for the DAX Party?

By Christoph Pauly

Stock markets around the world are reporting record highs. And shares in German companies, considered globalization winners, are proving especially popular.

The banks were ready for the new record high of 8,151 points that Germany's stock market, the DAX, reached last Friday. They had already quietly set aside the forecasts they had issued early in the year and replaced them with substantially more optimistic numbers.

Deutsche Bank originally predicted that the DAX would reach 7,200 points by the end of the year. But when the booming financial markets pushed the DAX above 7,200 in April, the bank's chief investment officer, Klaus Martini, issued a new projection: 8,500 points. Analysts at Commerzbank, another major German bank, thought they were being optimistic when they predicted that the DAX would reach 7,400 by the end of the year. Now they too have changed their forecast to 8,500.

"The trend is your friend," seasoned investor and market guru André Kostolany used to say. He didn't need any weighty studies to back up his claim. One of the paradoxical yet relatively accurate pieces of market wisdom is that when prices go up they keep on going up.

Stock prices worldwide are climbing at a dizzying pace, a phenomenon that last occurred in the late 1990s. Investment-hungry Chinese, eager to profit from their country's economic boom, are storming the markets and on average have doubled their investments since the beginning of the year. Half of Asia is in a buying frenzy.

In some parts of the United States the real estate market is on the verge of collapse in some regions because of banks' risky mortgage lending practices. Short-term interest rates across the Atlantic are now almost as high as they were back in 2000 when a boom was followed by a crash. But Wall Street traders were only nervous for a week or two before celebrating a new record all the more enthusiastically last Thursday.

Foreign Investors the Big Winners

In Germany, it is foreign investors who have benefited most from the stock market boom. Indeed, foreigners already own more than half of all shares in German industrial icons like Siemens and BASF.

The news that Germany's major corporations had become winners in the globalization game spread far quicker abroad than at home. According to figures prepared by the German Central Bank, the Bundesbank, foreigners purchased stocks worth a total of €37.5 billion in Germany in 2006. Beginning in March of this year, however, many professional investors took advantage of the higher share prices to take home their profits. Between March and May, foreigner investors sold off a total of €40 billion in German shares.

What does all this mean for the majority of private investors who have missed the party so far? Is it too late to invest now?

The shockwaves caused by the crash in 2000 are still in evidence today. Since last October, Germany's cautious investors have sold stock funds worth a total of €11 billion net, because entry prices were beginning to resemble those of the crazy market years.

Experts like to point out that there is a key difference between 2007 and 2000. "Stocks are still cheap," says Jörg Krämer. According to the chief economist at Commerzbank, predictions of average price-to-earnings ratios of 13 are by no means astronomic. Krämer believes that corporate profits will continue to rise steadily -- by 11 percent in 2007 and by as much as 12 percent in 2008.

"Germany's consumer-based recovery is still to come," says Holger Schmieding, chief economist at Bank of America. Schmieding is highly optimistic that the positive impact of rising wages and lower unemployment in Germany will become more evident in the future.

Schmieding and his fellow experts predict US markets will experience substantial setbacks, particularly in the financial sector. "The lending crisis in residential construction is costing the US 1 percent of its annual growth," says Schmieding.

But when prices are on the way up, even risky factors suddenly begin appearing in a rosier light than before. Schmieding firmly believes that the US economy will rebound all the more vigorously in 2008.

'DAX Could Reach 10,000 by 2010'

And Commerzbank expert Krämer also approves of the fact that many investors are suspicious of the high prices. "They'll have to buy at some point," he says.

There are plenty of pessimists. An unusually large number of professional investors have bought put options at the Eurex futures exchange. The value of these options would skyrocket if there were a market crash.

"It is very important to hold on to scepticism," says Henning Gebhardt. Nevertheless, the fund manager at DWS, Germany's largest mutual fund company, would like nothing better than to see a renaissance of stock funds among private investors.

Gebhardt currently favors industrial and chemical company stocks. "Every portfolio should include stocks," says Gebhardt, "the DAX could reach 10,000 points by 2010."

Translated from the German by Christopher Sultan
http://www.spiegel.de/international/bus ... 14,00.html

SPIEGEL ONLINE - July 13, 2007, 05:56 PM
URL: http://www.spiegel.de/international/bus ... 49,00.html

GERMAN STOCKS ON THE RISE
What Does the DAX Record Mean?

By Arne Gottschalck

Germany's stock market, the DAX, hit an all time high on Friday. Last time it set a record, it promptly crashed. Will the same thing happen again?

The DAX has done it. Finally, the German stock market on Friday managed to crack its previous record high of 8,136 points, which was set in March 2000. The blue chip index climbed briefly above 8,150 points shortly after trading opened, before falling back to just under 8,100 points in the late afternoon -- still over 30 points higher than Thursday's close.

The record comes as no surprise to market observers. Indeed many had been expecting the high for weeks, with some traders predicting it to come well before it finally did. "Investors are expanding their positions due to the friendly market environment," Ascan Iredi, head of market trading for Germany's Postbank, said recently.

Berlin welcomed the record as yet another sign that the German economy is healthy. The record, said Chancellor Angela Merkel's spokesman Ulrich Wilhelm, "makes it clear that business in Germany is flourishing, and that there is a very steady upswing."

Good Sign for the Global Economy

Others on Friday weren't so sure. Johannes Reich, head market strategist for Metzler Bank, told SPIEGEL ONLINE that while the high DAX is a sign for a positive economy, it doesn't necessarily mean all that much for the German economy. "It is a good sign for the continuing stability of the global economy," he said. "The DAX companies don't achieve their entire turnover in Germany. Some of them, in fact, do most of their business abroad." The DAX index is made up of 30 leading German companies, including such giants as BASF, Siemens, Allianz and Deutsche Bank.

The record came on the same day that the euro once again set a high against the dollar, trading as high as $1.3813 in the afternoon. The Dow Jones industrial average has likewise been soaring recently, having set a record high on Thursday along with the Standard & Poor's 500 index.

The DAX record, though, took longer than expected. Over and over again, the DAX seemed poised to burst through its historical ceiling, only to slip back. It was a pattern seen as recently as this week. One of the reasons? Two hedge funds from Bear Stearns suddenly ran into problems in the US and unsettled investors. The result was a distrust of the real estate market and financial sector.

In short, even as the DAX continues to climb, it seems nervous. But do investors need to fear that the market, now that it has hit an all-time high, might collapse again? Are hedge funds like those from Bear Stearns an incalculable risk for the financial markets?

'Makes People Nervous'

Holger Bahr, head of the economics department of DekaBank, explains last week's mini-crisis as follows: The problem with hedge funds, he says "is that there are no statistics showing where these funds invest and how they are leveraged -- that makes people nervous."

Bahr said that in general there has been an atmosphere of edginess in Germany when it comes to the economy -- and particularly in stock market investments. In addition to hedge funds, he also spoke of concerns about inflation or even the completely irrational fears that sometimes play havoc with the stock market -- combined with the day-to-day peaks and valleys that always keep investors on edge.

On the whole, however, Friday's record is one that can be thoroughly enjoyed. Most experts think it is unlikely that a major stock market crash will follow this most recent high, as happened in 2000. Back then, the high valuation of the stocks was based largely on overly optimistic profit forecasts -- and the market lost 70 percent of its value in just three years before bottoming out at 2,133 points in March 2003. This time around, investors are more careful; many traders say that, in contrast to seven years ago, the market is not besotted by euphoria.

"If you look at the price-earnings ratio, then the DAX is in no way over-valued," said Bahr. "If you calculated the dividends from the DAX, which is after all an index of performance, then you would be looking at a value of around 6,600 points. From that point of view, German shares have plenty of room to breathe."

Safeguard against Hubris

Franz Wenzel, the strategic maestro behind Axa Investments, agrees. "The stocks are by no means overvalued," he says, "whether you measure it by the price-earnings ratio, book value or risk premium. Given profit growth of 10 percent or more, a price-earnings ratio of 13 to 14 does not seem too high."

German companies have simply changed. "The companies are constantly improving their efficiency," says Bahr. "Only just a few years ago, that happened only in fits and starts."

Still, one of the main reasons that many analysts see the DAX as being more stable this time around than it proved to be at the beginning of the decade, is that investors haven't forgotten the crash. "After four years of climbing stock prices, the markets have become more vulnerable," said Reich. "I would put it this way: The mood is sceptically optimistic. That doesn't mean anything bad -- caution safeguards against hubris."