European politics send shares sliding

Filomena Scalise

Filomena Scalise

Published Feb 5, 2013

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London - European shares fell steeply on Monday as mounting political uncertainty in major euro debtor countries prompted investors to lock in profits on indexes trading close to multi-year highs.

The FTSEurofirst 300 ended down 1.5 percent at 1,150.91 points, its lowest close since December 31, having hit a near two-year peak of 1,178.55 points towards the end of January in a rally that raised it nearly 8 percent above a November trough.

The euro zone's blue-chip Euro STOXX 50, meanwhile, fell 3.1 percent to 2,625.17, erasing all of its gains for the year.

A corruption scandal in Spain and polls showing Italy's former prime minister Silvio Berlusconi regaining ground before elections this month triggered fresh concern over potential threats to euro zone stability and growth.

That pushed peripheral bond yields higher and prompted some heavy profit taking on euro zone banks, down five percent, Spain's IBEX, off 3.8 percent, and Italy's FTSE MIB , down 4.5 percent.

Yves Maillot, head of European equities at Natixis Asset Management, which has 286.5-billion euros of assets under management, said the fall should be viewed as a pause rather than the start of a serious sell-off.

“For many weeks now we've had very positive performances so that's the reason why we maybe need a correction in the very short term,” he said.

Suggesting there is still a lot of demand, equity funds attracted another $18.7-billion during the final week of January, fuelling talk of a long-awaited 'great rotation' out of fixed income and into stocks, EPFR Global said.

Jonathan Stubbs, European equity strategist at Citi, said that over the next two years, he would expect the first proper bull market in equities since the mid to late 1990s.

“To get a proper bull market in equities you need to see... growth coming through, you need a re-rating and you need inflows. As we look out to the next one to two years we think all of those ingredients will be in place,” he said.

Commerzbank was second-biggest faller on the FTSEurofirst 300 index, down 5.9 percent in brisk trade, after it posted a larger than expected quarterly loss.

Trading volume in Commerzbank stood at more than twice its 90-day daily average.

“We're well overdue a bit of a sell-off... you've also got some very disappointing results from Commerzbank this morning which have basically fed into the banking sector,” Michael Hewson, senior markets analyst at CMC Markets, said.

European auto stocks also came under pressure, off 3.2 percent after gains left investors such as Citi and HSBC sifting through the sector for companies that still offer some value.

The auto sector was the best performer in Europe in 2012, surging 38 percent, and since September it has rallied around 20 percent, despite continued earnings per share downgrades.

Over the last six months I/B/E/S 12-month forward earnings per share forecasts have been downgraded by 12 percent as European car market fundamentals have deteriorated further.

HSBC said French car makers face major challenges and downgraded Renault to “neutral” from “overweight” after a strong share price run that has raised it 32 percent since mid November.

Renault fell 3.3 percent. - Reuters

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