Inflows fuel European stock rally

Published Feb 17, 2014

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Paris - European stocks rose on Monday, extending a brisk two-week rally fuelled by record inflows as an increasing number of investors bet on the region's economic recovery.

Easing worries over emerging markets as well as data showing brisk lending in China boosted shares in miners, with BHP Billiton up 1.3 percent and Glencore Xstrata up 1.5 percent.

At 13:30 SA time, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 1,338.67 points, a level not seen in 3-1/2 weeks.

The benchmark index, which has surged 5.3 percent over the past two weeks, is about 1.1 percent below a 5-1/2 year high hit in January.

European equity funds have enjoyed net inflows of $17 billion since the beginning of 2014, according to the latest data from EPFR Global, marking a record start to the year and in sharp contrast to massive outflows from emerging market funds.

Within Europe, equity funds focused on Italy and Spain have been leading the way in terms of inflows, EPFR said.

Both countries have recently seen their bond yields retreat sharply.

Italian 10-year government bond yields hit an eight-year low of 3.622 percent on Monday, after ratings agency Moody's lifted its outlook on the country's credit rating to 'stable' from 'negative' and as Rome prepared for a new government.

“Investors are quite sanguine about the economic and political situation in peripheral Europe, and that's a very positive signal,” said David Thebault, head of quantitative sales trading at Global Equities in Paris.

“Ten-year bond yields continue to fall across the board, a sign of stability which has prompted a lot of investors to come back.”

Italian shares were steady on Monday, with Milan's FTSE MIB up 0.03 percent.

The index outperformed on Friday, rallying a 1.6 percent, as investors welcomed the prospect centre-left leader Matteo Renzi will become prime minister.

Renzi said on Monday he will begin official consultations to form a new government in the next 24 hours and expects to lay out reforms to be completed within the next few months.

The MIB is up nearly 8 percent so far this year, trading at a 2-1/2 year high and strongly outperforming a 1.6 percent rise in the FTSEurofirst 300 in 2014.

In core European markets, the UK's FTSE 100 index was up 1 percent, boosted by buoyant mining stocks, while Germany's DAX index was up 0.1 percent.

Paris's CAC 40 was up 0.03 percent after hitting a three-month high earlier in the session.

The French benchmark has been rising for 10 sessions in a row.

“The CAC is back at its year high, and even if there's a need for a pause at some point after such a long winning streak, it could easily break out on the upside in the next few weeks,” Barclays France director Franklin Pichard said.

European shares have been supported by relatively good corporate results in the current earnings season, with 58 percent of companies reporting in-line or better-than-expected profits, according to Thomson Reuters Starmine.

While in absolute terms net profits are still falling, a pick-up in corporate revenue, up 2.3 percent overall, and a slight improvement in economic growth in the euro zone is fuelling investors' hopes that earnings will pick up this year.

Bucking the trend on Monday, Bouygues slipped 0.8 percent after unveiling a 1.4 billion euro ($1.9 billion) writedown on its investment in Alstom to reflect the train and turbine maker's weaker cashflow forecasts.

ThyssenKrupp fell 1.5 percent. Traders pointed to Citigroup's decision to cut its recommendation on the stock to “sell” from “neutral”, citing inflated valuations.

Shares in Neste Oil dropped 5.1 percent after Nordea lowered its rating to “hold” from “buy,” citing uncertainty over US policies on biodiesel, including volume targets and tax credits.

Overall, trading volumes were expected to be thin in Europe on Monday as Wall Street will be closed for a public holiday. - Reuters

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