[LONDON] European equities sailed to a record as optimism about Mario Draghi's stimulus lifted shares from carmakers to energy producers.
The biggest weekly rally since January propelled the Stoxx Europe 600 Index above a previous all-time high reached in 2000. The gauge closed at 409.15 on Thursday after a report showed German industrial production beat forecasts, the latest of data signaling the euro area's economy is improving. It climbed another 0.9 per cent on Friday.
European stocks have gained 21 per cent this year, including the steepest first-quarter advance since 1998, as the euro weakened amid quantitative-easing measures by the European Central Bank.
While investors have been focusing on exporters, they'll shift to companies dependent on a domestic rebound as the ECB's stimulus pervades the economy, according to SEB AB's Thomas Thygesen. Euro-area growth will accelerate every quarter in 2015, forecasts show.
"The European story is entering a second stage," Mr Thygesen, SEB's head of cross-asset strategy, said by phone from Copenhagen.
"All the ingredients for an outperformance have fallen into place and it's by no means over."
ECB President Mr Draghi's 2012 pledge to do whatever it takes to preserve the euro has helped fuel a bull run that sent the Stoxx 600 up more than 160 per cent from a low in March 2009. The benchmark gauge came within points of an all-time high in 2007, before the global financial crisis spurred a 61 per cent decline in less than two years.
Equities clawed back those losses as the ECB started buying sovereign debt last month. In the US, three rounds of Federal Reserve asset purchases helped the Standard & Poor's 500 Index more than triple from a 2009 low. Weaker-than-forecast US data this year also fueled speculation the Fed's policies will stay supportive of global growth.
Mr Draghi's efforts are paying off. Economic reports are beating estimates by the most in two years. Investors have poured more than US$50 billion into European share funds this year, according to a Bank of America Corp report citing EPFR Global data.
Company analysts have also embraced a bullish outlook on Europe. They forecast earnings will rise 7.5 per cent in 2015, from January predictions for a 9.7 per cent increase. That's the smallest cut since 2012.
All 19 industry groups in the Stoxx 600 have advanced this year. Carmakers led the rally as Fiat Chrysler Automobiles NV and PSA Peugeot Citroen jumped more than 55 per cent. Energy producers, the worst performers in 2014, climbed 18 per cent, notwithstanding a slump in oil prices. A surge in BG Group Plc after Royal Dutch Shell Plc agreed to buy it helped send an index tracking oil-and-gas stocks to the highest level since October.
The Stoxx 600's advance has propelled its valuation to 17.3 times the projected earnings of its companies, the highest in at least a decade. That increases the chance of shares retreating if profits fall short, according to Bankhaus Lampe KG's Ralf Zimmermann. Further gains could also be hampered by Greece's failure to reach an accord with euro-area creditors, he said.
"I was a buyer before, but after such a tremendous run, it's time for a break," said Mr Zimmermann, an equity strategist in Dusseldorf. "Investors are focused only on the ECB and neglected risks completely, but they are still there. Markets have overshot fundamentals."
European stocks are still cheaper than those in the US, and investors have flocked to core and peripheral markets alike. Benchmark gauges from Denmark, Portugal and Germany soared more than 25 per cent for the biggest winners among developed markets this year. Italy's Banca Popolare di Milano Scarl and Spain's Abengoa SA were the best-performing European shares, surging at least 75 per cent.
A measure of volatility expectations in European equities has dropped 33 per cent in 2015.
The Stoxx 600's record "is a reflection of the economic recovery that's coming through in Europe," said Alan Higgins, London-based chief investment officer at Coutts & Co, which oversees about US$48 billion.