North American stocks should make up 36 per cent of the model portfolio, while stocks from Japan and the Emerging Markets should each make up 8 per cent. These are the findings of a survey conducted among 246 financial analysts by the Centre for European Economic Research (ZEW) in Mannheim in November asking them for their suggestions for the optimum portfolio composition for the year 2002 as part of the ZEW Financial Market Test.
For portfolios comprised entirely of German shares, the surveyed analysts recommended investing in selected growth sectors such as the telecommunications industry. This industry in particular should profit from recently lowered interest rates. Furthermore, the financial experts advised investing in more defensive stocks such as insurance companies or suppliers, which are less cyclical. The analysts do not anticipate a strong economic recovery in 2002. Accordingly, they also advise against relying too heavily on cyclical sectors such as the auto or steel industries.
They advise investors in German bonds to make only short to medium-term investments and to avoid long-term bonds lasting longer than seven years. The latter are currently bringing in fairly unattractive interest rates of around 4.3 per cent. These interest rates are scarcely any lower than those yielded by short to medium-term bonds. If inflation were to become an issue and lead to an increase in long-term interest rates, long-term bond holders could suffer losses.