Standard & Poors introduces Factual Stock Report coverage on The European Equity Fund, Inc. The service provides factual research coverage delivering information about The European Equity Fund, Inc. and other securities to reach a wide investor audience of Buy and Sell-side investors, helping them understand a companys fundamentals and business prospects.
The European Equity Fund, Inc. (formerly The Germany Fund) is a non-diversified, closed-end investment company that seeks long-term capital appreciation through investment primarily (normally at least 80% of assets) in equity and equity-linked securities of companies in all European countries using the euro currency. Prior to late October 2005, the fund primarily invested in equity or equity-linked securities of German companies.
Prior to late October 2005, the fund invested primarily in a broad cross-section of German equity and equity-linked securities. Under normal market conditions, at least 65% of total assets were invested in these securities. Current interest and dividend income may be considered in selecting securities.
The fund reported in their 2007 annual report that the outlook for the world economy and equity markets in 2008 has become more clouded, as repercussions of the US subprime crisis spread into wider areas of the financial sector. This poses the risk of a sharp economic growth deceleration, triggered by credit tightening and deteriorating consumer confidence.
Economists and equity strategists have taken a more cautious view and lowered their forecasts, as troubles in the financial sector have deepened with the announcement of write-offs and softened the macro-economic indicators. The accelerating trend of widespread earnings downgrades by equity analysts and the continued weakness of the US dollar are key risk factors.
At the same time, they note that market participants are worried about inflation creeping up, not least on the back of rising food and energy prices, and also rising concerns of stagflation. They believe, however, these negatives will likely be balanced by continued strength in the ever more important emerging market economies, strong financial health of the industrial sector and equities valuations, which are already pricing in a bearish earnings scenario. Given this increased uncertainty, volatility is likely to remain high and may offer tactical opportunities. With substantial macroeconomic headwinds, they remain constructive for European equities but prefer the continent and stay cautious on the UK.
As the Eurozone cannot escape the impact of global growth moderation and has to contend with euro strength as well as inflationary pressures, the forecast for economic and earnings growth is reduced, but still strong enough to allow for absolute upside potential in its equity market.
L.D.