While the Danish market remains dominated by market movements on Wall Street and Bundesbank interest rate policy, its most interesting internal theme is the increasing attention companies are paying to shareholder value.

Kim Nielson, senior portfolio manager with responsibility for Danish equity at Alfred Berg Asset Management in Copenhagen says: What is driving the market is earnings growth from companies. In the next few years we will see more attention paid to shareholder value as in the US and UK."

Peter Kruse, chief analyst at Aros Securities in Copenhagen, adds: "Danish companies are now aware of the importance of being efficient and providing shareholders with a decent return."

Kruse predicts that the market will rise to 670 or 680 in the medium term, reaching 720 by the end of next year with "some ups and downs in between" due to global volatility.

Nielson, because of this volatility, is more reluctant to make predictions. The market, he says, is difficult to assess.

The internal drivers, according to Kruse, are expectations of a spillover from the financial "merger mania" now affecting the rest of Scandinavia and a shift from public to private provision particularly benefiting companies in the care sector.

Kruse recommends these service sector companies but adds that medium-term performance is highly dependent on the signals from politicians.

"There will be blurred signals for a while but they know which way the wind is blowing," he adds.

Nielson emphasises that Denmark is not a sectoral market, with some sectors represented by only one or two companies. He does not recommend any companies in particular, saying that while many are doing well nothing particularly stands out.

Assessing the risks, Nielson says that there may be some volatility over rumours of an early election but that with little difference between government and opposition, risks are limited.

Other risks come from interest rates. Danish interest rates remain closely correlated to those of Germany although Denmark's wariness of the single currency will have an effect.

"I think we could see some increase in interest rates at the time of the currencies linking," says Nielson.

"If the Danish current account deteriorates further then the Danish interest rate spread towards Germany will hike," adds Kruse, although he notes that the government is taking some steps to counteract the problem.

One Copenhagen-based bond manager says that the bond market faces two uncertainties: market turbulence and the exact circumstances of the euro's introduction.

"Are the rates going higher or will the high-yielding countries come down to Germany's level? I believe Germany will have higher rates with resulting higher rates in Denmark.

"The spread with Germany will stay at around 40 to 60 basis points for two to three months," he says.

If the euro includes Spain and Italy, he adds, they will outperform Denmark which will have a currency risk as well as a credit risk. If the spread tightens in Italy and Spain, Denmark's spread will also tighten but not to the same extent.

The yield curve, he says, is relatively steep due to the recent flight to quality. "If the equity markets calm down, money will be pulled out of bonds. The bank would be happy to raise rates if there is an opportunity to do so and the yield curve will be flatter."

However if the crisis continues, growth will slow down, steepening the yield curve and perhaps bringing rate cuts in the process.

The bond manager adds that he sees the Danish mortgage bond sector as one of the really good moving sectors for European bonds, offering spreads of close to 100 basis points over government bonds. John Lappin"

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