Are European Investors Optimistic About the U.S.?

by Dennis Jacobe, PhD
Gallup Chief Economist

During most of the first half of this year, European investors have been more positive about the prospects for the U.S. economy than they have been about those in Europe or anywhere else in the world. Therefore, it is not surprising that European investor optimism has tracked pretty closely with that of U.S. investors.

Given this context, it is also not particularly surprising that optimism among European investors -- like that among U.S. investors -- has dropped sharply during the past couple of months. New Gallup/UBS Index of Investor Optimism -- EU5 poll data for July* show overall investor optimism falling to 2 points -- its lowest level since the baseline was established last October at 4. The EU5 Index reached 40 in January, fell to 20 in February, but increased again to 32 in March. It was at 26 in April and 28 in May before falling to just 8 in June. In July, EU5 investors are essentially neither net optimistic nor net pessimistic about the investment climate.

Investors Are More Optimistic About Europe

Between February and May, more European investors told Gallup that they were optimistic about the financial markets in the United States than said the same about markets anywhere else in the world -- even European markets. In June, about one-third of European investors said they were most optimistic about the U.S. financial markets and about the same percentage said they were most optimistic about the financial markets in Europe. By July, these percentages had reversed. More Europeans now say they are optimistic about the financial markets in Europe than say the same about the U.S. markets -- the same attitude that prevailed in January.

Investors Are Also More Optimistic About the Euro

Over the first six months of this year, more European investors told Gallup that they found the U.S. dollar to be the most attractive currency as opposed to the Japanese yen, the British pound or even the euro. This trend changed in July, with more European investors saying the euro is the most attractive currency.



Will European Investors Flee the U.S.?

So are European investors likely to flee the U.S. markets? It is hard to argue that they won't. International investors are not only experiencing the losses and risks associated with today's U.S. markets themselves; they are also encountering significant currency risk as the dollar weakens. If international investors continue to take money out of the U.S. financial markets, it will be harder for the U.S. economy to regain its upward momentum. Capital spending will not improve (though it may not necessarily decline from its current level) -- and over time, the exodus of European money will lead to higher U.S. interest rates and probably even further weaken the dollar. None of this would be good news for the U.S. economy in the months ahead.

*Results for the Index of Investor Optimism -- EU5 are based on interviews with approximately 200 investors each in France, Germany, Great Britain, Italy, and Spain conducted July 1-14, 2002. For results based on a total sample of approximately 1,000 investors, one can say with 95% confidence that the margin of sampling error is ±3%. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

Get Articles in Related Topics:


Gallup http://www.gallup.com/poll/6496/European-Investors-Optimistic-About-US.aspx
Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A
+1 202.715.3030