Geographically we prefer the US to Europe

Morgan Stanley specialist table on a progression of approximately 10 of the MSCI Europe, thanks in particular index continued growth of corporate profits. But the performance may be stronger in the multiple expansion.

How do you evolve in 2007 European equity markets

Places should continue to rise, while we will leave the "soft" growth environment currently prevailing. Since last spring, concerns revolve around the impact of a crisis in the American housing market and the slowdown in growth in the United States. These concerns will gradually fade. We are building on an increase in U.S. GDP of 2.5 in 2007, even more, after 3.3 in 2006. We do expect lower rates of the Federal Reserve. Our scenario is rather a new monetary tightening if inflation is too high.

The growth of profits should, however, slow down...

The benefits of European companies should increase by approximately 6, after 12 in 2006. It is a slowdown, but the most important is that the trend remains positive. We therefore expect an increase of 10 of the MSCI Europe (taking into account dividends), after a gain of about 15 in 2006. But this could go up to 20, if all catalysts are met and we are witnessing the multiple expansion.

Which means that the environment is conducive to a progression of ratios course benefits...

Ratios courses on benefits (PER) of the European markets should increase in 2007, reflecting the fact that investors are willing to pay more actions. PE are located around 13 at the present time, while the average since 1970 MSCI Europe is 14.5. Moreover, at this stage of the cycle and in the current environment of low inflation, there frequently a multiple increase. Traditionally, 70 of the returns in a bull market comes from an expansion of the PE. However, since the beginning of the phase of growth in 2003, we did in not yet observed.

You tablez, on the other hand, a continuation of the mergers and acquisitions...

Dynamics might even accelerate and connections should be size companies even more important. Last year, nearly 80 of operations were "in cash", half less in 1999, and companies have abundant liquidity in their balance sheets.

Conversely, what are the key risks for the awards

Need to monitor the evolution of the interest rates of central banks, the dollar, and geopolitical risks. Equity markets could suffer correction phases in the first part of the year. Modest changes in the macroeconomic environment are likely to create more volatility, whereas the context of growth will be generally less carrier for companies.

What country and what sectors do you

We recommend playing the cyclical economic growth to still make for a nice surprise. The values of the telecoms-media-technology sector were often neglected by investors, while they offer an attractive valuation. Geographically, we prefer the US to Europe. American places grew less rapidly in recent years. In addition, American investors remain cautious on the actions of their countries: about 90 of the US mutual fund flows are on international actions, while the average since 1990 is significantly lower. Within Europe, we prefer the Italy, which is rather cheap and economic growth should accelerate.