European stocks approach 15-year high

European share prices maintained their bullish momentum on Friday, propelling the FTSE Eurofirst 300 towards the record peak set during the dotcom era.

Investors have poured record amounts of money into eurozone equities over recent months, emboldened by the prospect of an economic recovery as the European Central Bank's €1.1tn quantitative easing policy suppressed borrowing costs and cheapened the single currency.

With the ECB's €60bn of monthly bond purchases starting only last month, investors are mindful that the eurozone equity rally has further room to run, given the stellar performance of US shares in recent years when the Federal Reserve was the largest buyer of government debt.

A quarter of eurozone government bonds now trade with a negative yield, creating a powerful incentive for investors to own shares that pay a higher dividend. The declining value of the euro, which has fallen 12 per cent this year, also provides a boost for euzone companies that rely on foreign based revenues, providing a notable tailwind for large multinationals such as Merck, BASF, Volkswagen, Adidas, Peugeot and Airbus.

"With even Spanish government debt now carrying a negative yield thanks to QE, it's no surprise that investors are throwing themselves headlong into equities to try and find some income," said Tony Cross, Market Analyst at Trustnet Direct.

"The ECB's QE is the big driver in play right now".

Sentiment for equities this week was bolstered by further weakness in the euro and from early signs of a deepening recovery within the eurozone, led by forecast-beating German industrial production data and confidence data from the currency area's manufacturing sector sitting at a multiyear high.

Share markets in Germany, France, the Netherlands and Italy have all risen more than 20 per cent so far this year, while the broad FTSE Eurofirst 300 index stands at 1,638.42, shy of its record closing high of 1,704 from April 2000.

The Euro Stoxx 600 index trades at a record level, although when adjusted to reflect the euro's recent slide, the barometer remains 22 per cent below its apex, hit in 2007. In dollar terms, the performance of eurozone shares is lower thanks to the weaker euro, however they have still handily eclipsed the S&P 500's gain of 1.6 per cent this year.

A major driver of the European share rally has been money flowing into the market from foreign based investors, but also mindful that a weakening euro lowers their overall return.

Flows into exchange traded funds that provide protection against a weaker euro have been the largest for the industry so far this year, according to ETF.com. The Wisdom Tree European hedged equity fund, which tracks eurozone shares and sells the euro, has attracted $11.2bn of funds since January, followed by the Deutsche X-trackers MSCI EAFE hedged equity ETF, which has attracted $6.28bn.

This week's gains have been led by exporters, bolstered by the weaker euro. There were notable advances across the region for drugmakers, after recent speculation that the weak euro makes it look more appealing to acquisitive US pharma companies.

The pattern was similar on national indices. Frankfurt's Xetra Dax 30 was up 1.1 per cent, a new record, at 1,2303.7. The CAC 40 in Paris rose 0.4 per cent to 5,229.0 and the FTSE MIB in Milan gained 0.3 per cent to 23,868.4.

On the eurozone periphery, Madrid's Ibex 35 ticked up 0.1 per cent to 11,743.8 while the Athens General rose 1.1 per cent to 776.0

The Eurofirst is up 19 per cent in the year to date - as investors push funds into stocks in response to the European Central Bank's €1.1tn stimulus package.

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