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Bourses revisit pre-terror levels
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October 11, 2001: 9:09 a.m. ET
One month on from terror attacks bourses bounce back, but investors must curb optimism
CNN's Abid Ali
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LONDON (CNN) - A month after the deadly terrorists attacks on the financial heart of New York, European equity markets have been on a Rollacoaster ride.
Terrorists brought down the World Trade Center and closed the U.S. financial markets for four days, their longest break since the Great Depression, leaving European and Asian markets groping for direction.
Now European markets are trading at close to pre-September 11 levels but many investment gurus believe current rallies are too optimistic. Before the attacks the markets were counting the cost of a U.S.-led economic slowdown.
"It's like September 11 did not exist," David Thwaites, market strategist at investment bank BNP Paribas told CNN. "I think the rally is a little premature before the attack the U.S. economy was showing signs of recovery."
The U.S. economy took a "tremendous knock" but all we have at the present is pre-September 11 data on the economy and from companies reporting third-quarter (three months to September 30) earnings, Thwaites said.
London's FTSE 100 benchmark index, which had fallen more than 17 percent since the beginning of the year, took a battering falling almost 6 percent on September 11.
The market was trading at a five week high on Thursday, while the CAC 40 in Paris and Frankfurt's Xetra Dax were just under pre-attack levels. Before the attacks both markets tumbled more than a quarter of their value on the year.
In the U.S. the Dow Jones industrial average and the tech-laden Nasdaq composite index are just below pre-attack levels.
Market strategists say a number of technical factors, like liquidity and sentiment are influencing the markets current rally and reality will set in. There are a lot of investors sitting on cash who are looking for opportunities to enter the market.
But military attacks on Afghanistan, poor corporate figures and gloomy economic data could still undermine that rally.
"The real effect on the economy and corporate profits after the Septemeber 11 is unknown," Khurum Chaudry, market strategist at Merrill Lynch, told CNN. He believes the FTSE 100 benchmark index will finish the year at about 4,900 points, below the current level.
Chaudry said the European Central Bank, which decided to leave intrest rates on hold at 3.75 percent on Thursday, must join other central banks in trimming rates to "fuel the fire for a bull run."
Merrill Lynch expects the ECB to cut rates by another 0.75 percent this year, while the U.S. Federal Reserve is expected to have another half point cut in its armory.
BNP's Thwaites is still positive on the U.S. economy and is advising his clients to choose stocks on the other side of the Atlantic over their European counterparts.
"You really want to take advantage of the U.S. recovery," said Thwaites. "Technology, telecom and consumer cyclical stock would be the best investments." He expect European bourses to end the year up about 10 percent to 15 percent from current levels.
The best bets, according to Merrill Lynch's Chaudry, are defensive stocks like tobacco companies and consumer cyclical such as retailers, mining and engineering companies. In the current rate cutting environment, banking stocks are also attractive. Interest rate cuts can lower borrowing cheaper and help out debt laden companies. 
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