Europe’s indexes may pull ahead

EUROPE’S benchmark stock indexes have lagged comparable US measures this year, but they may soon start to pull ahead.

The reason: exporters in the region, including Royal Philips Electronics NV and Siemens AG, stand to benefit from a rising dollar. The US currency set a four-month high against the euro last week.

Morgan Stanley’s European strategists, ranked No 1 in a survey by Institutional Investor magazine, told clients to own local stocks rather than US shares unless the dollar starts falling. Government moves such as planned tax cuts in Germany and changes to France’s pension system may spur economic expansion in the region, they said.

“It’s a good moment to switch from the US to Europe,” said Enrique Roca, who helps manage $1.5bn at Bancaja in Valencia, Spain. The Dow Jones Stoxx 50 added 1.4% last week and the Stoxx 600 gained 2.2%. Philips and Siemens, which make at least a quarter of their sales in dollars, led the advance.

The dollar climbed as government reports signalled that the US economy, the world’s largest, is accelerating. For the year, the European indexes are lagging their US counterparts. The Stoxx 50 has risen 5.2%, less than half of the Dow industrials’ 12% gain. The Stoxx 600 has added 8.2%, trailing a 13% advance in the S&P 500.

Last week’s rise in the Stoxx 50 exceeded the 0.3% gain for the Dow Jones Industrial Average. Similarly, the Stoxx 600’s advance surpassed a 0.2% increase for the Standard & Poor’s 500 Index. The Stoxx 600 has moved higher in 12 of the last 13 sessions. Their better performance follows moves to stimulate economic growth, such as Germany’s proposal to bring forward €15.6bn in income-tax cuts by a year. The reductions would take effect in 2005.

In France, the government passed a law that overhauled the state-run pension system by inducing workers to retire later and to contribute longer.

Strikes failed to stop the plan being approved.