Risk appetite boosts banks and builders

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Indices in Europe advanced to their highest level since April after Sunday’s meeting of global banking regulators eased investors’ fears about a wave of imminent capital raisings.

“Our equity analysts’ view is that the final requirements are probably lighter than markets expected both in terms of the level of capital and the transition period,” said Laurent Fransolet, an analyst at Barclays Capital.

The appetite for risk in the region continued to improve on upbeat Chinese economic data, which was viewed as encouraging for global recovery prospects, boosting banks and construction stocks across the region.

Investors pushed up Deutsche Bank shares after it confirmed plans for an €8bn-plus rights issue. News of the bank’s tender offer for Germany’s leading retail bank, Deutsche Postbank – at the minimum required price – led to profit-taking in Postbank.

Shares in Deutsche Bank were up 1.7 per cent to €48.51, while Postbank shed 7.8 per cent to €24.92, within the price range offered by Deutsche Bank.

Stocks in Paris-based bank Dexia jumped 6.2 per cent to €3.41, making it the top gainer on the pan-European FTSE Eurofirst 300 index, while Crédit Agricole jumped 5.8 per cent to €11.59. It was the second biggest gainer on the same exchange.

The Eurofirst 300 was up 0.6 per cent to 1,087.97.

Analysts pointed out that dividend futures for European equities seemed to be undervalued as they had priced in the impact of a double-dip recession on earnings. They said the outlook for corporate Europe remained positive, making large-cap high-yielding equities attractive.

“Dividend futures prices are consistent with a medium-term scenario similar to or worse than the 1930s Depression and Japan in the 1990s” said Ronan Carr, analyst at Morgan Stanley.

“There are some important micro differences to Japan that suggest a better outcome for dividends. First, corporate leverage was higher in Japan than Europe today and shareholder representation and focus was much weaker.”

Another analyst at Deutsche Bank said: “European equity returns depend on global growth, and we expect the global recovery to continue.”

Morgan Stanley recommended buying shares in companies with the potential to boost cash returns to shareholders. German carmaker BMW featured in the list as the bank expected the company to increase its dividend in 2011. Shares in BMW rose 0.5 per cent to €46.44.

Rival Audi gained 1.7 per cent to €600 as the bank rated its stock as “overweight”.

In a similar vein, Deutsche Bank also recommended shares in companies with proved dividend records. Germany’s BASF, the world’s largest chemicals group, and French pharmaceutical group Sanofi Aventis were among its top picks.

Shares in BASF were up 2.3 per cent to €44.69, while Sanofi climbed 1.1 per cent to €49.07.

Frankfurt’s Xetra Dax rose 0.8 per cent to 6,261.68, while the CAC 40 in Paris edged 1.1 per cent higher to 3,767.15.

Elsewhere in the region, Danish wind turbine manufacturer Vestas Wind climbed 5 per cent to DKr217.80 as Ditlev Engel, chief executive, reassured investors about the company’s 2010 guidance and capital structure.

Paris-listed cement maker Lafarge edged higher to €41.20, recording a rise of 3.4 per cent after it raised its forecast for the French market.

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