FRANKFURT: Germany's blue-chip DAX index was seen rising 7 percent to 6,500 by end-2012 as euro zone policymakers step up efforts to tackle the region's debt crisis, according to a quarterly Reuters poll on Thursday.
The benchmark was also expected to reach 6,200 points by mid-2012, the median in a poll of 23 strategists and down from a forecast for 6,500 in the September poll.
Since September, the Greek debt crisis has spread to other euro zone countries, including Italy. The 17-nation currency bloc will face a critical summit next week, seen by investors as possibly the last chance to avert a break-up of the union.
"Even if a solution emerges, the problem will not be solved tomorrow," said Florian Weber, executive at Schnigge Wertpapierhandelsbank, who expected the DAX to fall to 5,000 by mid-2012, the lowest estimate in the poll. "It is important to increase income of the states in crisis and to make them competitive again. And that will take three to four years."
Global indexes rallied on Wednesday after central banks around the world announced co-ordinated steps to prevent a credit crunch among banks in Europe struggling with the region's debt crisis. The index, down 12 percent this year, is home to big financial stocks, most notably top lenders Deutsche Bank and Commerzbank, which have taken a beating in recent months. Deutsche Bank shares are down 32 percent this year, while Commerzbank has lost 70 percent. A European bank index index is down over a third.
"At the moment sentiment is mega bad," said Wolfgang Duwe, equity strategist at Bremer Landesbank, adding he did not expect the euro zone to fall apart.
IT WILL HURT
Economic developments in the United States as well as China should also weigh on the DAX. Last week the World Bank said China's economy could face growing risks from Europe's sovereign debt crisis, adding it expected China to grow 9.1 percent this year, slowing to 8.4 percent next year.
The DAX index includes global bellwethers such as engineering conglomerate Siemens, carmakers BMW
and Volkswagen, steel group ThyssenKrupp and chemicals maker BASF. Since most of those companies generate a major share of revenues and profit abroad, the DAX also reflects growth trends abroad and is more than a proxy for the domestic economy.
"The double-digit growth we are used to in China, will not last. This is not a disaster, but it will hurt and cause larger restraint in the market," Weber said.
Some would not bet on the future, given the current market. "Sorry, at the moment such extreme scenarios are possible ... we cannot provide a prediction," one Frankfurt-based trader said.