Sunday 4 December 2016

European shares recover from rough ride

Saikat Chatterjee

Published 02/09/2015 | 07:31

A pedestrian is reflected on an electronic board showing the graph of the recent fluctuations of the Japan's Nikkei average outside a brokerage in Tokyo, Japan, August 27, 2015. REUTERS/Yuya Shino
A pedestrian is reflected on an electronic board showing the graph of the recent fluctuations of the Japan's Nikkei average outside a brokerage in Tokyo, Japan, August 27, 2015. REUTERS/Yuya Shino

European stock markets recovered from a rough start to the week on Wednesday, rising almost 1 percent as traders pointed to intervention in China that helped calm wobbly markets and hopes for more central bank action.

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European equities have suffered a bruising end to the summer, down more than 2 percent since the end of August and down more than 10 percent since the end of July, but brokers and investors say there is still value in high-yielding blue-chip stocks at a time of central bank bond-buying in the euro zone.

The pan-European FTSEurofirst 300 index was up 0.7 percent, at 1,402.89 points, at 0733 GMT. National benchmarks in London, Paris and Frankfurt were trading broadly in line.

China, the epicentre of worries over the global growth outlook, enjoyed a late-stage market recovery after fresh supportive measures from brokerages that eased investor fears that Beijing may be intensifying a trading crackdown. An upcoming public holiday will also bring respite, traders said.

"We have seen a late recovery in Asia that has largely been as a result of some late state intervention in Chinese markets to help keep a floor under stocks," said Michael Hewson, analyst at CMC Markets.

Traders also said that hopes were growing for more central bank action in the wake of the recent surge in market volatility. Bets that the U.S. Federal Reserve could raise rates as early as this month are being scaled back, while the ECB is expected to take a more dovish stance after its policy meeting this week, they said.

"(ECB chief) Mario Draghi will probably hint, if not say, that if markets continue being in turmoil there will be more QE (bond-buying)," said Markus Huber, trader at brokerage Peregrine & Black.

Deal-making hopes also propped up equities, with Alstom up 3 percent after a report in the Financial Times said its sale of energy assets to General Electric was set to get the green light. Tesco shares were slightly higher after sources said it had picked a preferred buyer for its South Korean business.

ASOS shares fell more than 3 percent after its chief executive stepped down after 15 years in which he transformed the internet minnow into a retail powerhouse.

Asian shares fell for a third straight day on Wednesday as weak manufacturing reports from China, the United States and Europe fueled worries about slowing global growth, while the dollar took back some ground lost in the previous session to the safe-haven Japanese yen.

But U.S. S&P e-mini equity futures were up 0.9 percent, which put a floor under sentiment.

While signs of an emerging market slowdown have been evident for a while in the form of falling commodity prices and weak trade growth, investors had been broadly sanguine on hopes that robust demand from the U.S. and China would keep the global growth engine chugging along.

But this week's weak PMI data has dispelled such notions.

Data showed US factory activity hit a more than two-year low in August while a survey showed China's manufacturing sector shrank at its fastest pace in at least three years last month. In a worrying sign, new order to inventory growth indicated further declines.

"This is the emerging market crisis of 2015," said Dominic Rossi, global chief investment officer of equities at Fidelity Worldwide Management, which manages $290 billion in assets globally.

"While emerging markets are in a far better shape than what they were a few years ago, there may be more pain in store for them," he said.

Investors and money managers are taking no chances. EPFR data for the latest week showed the largest weekly emerging market bond outflows since the "taper tantrum" in 2013 while equity outflows also surged, according to BNP Paribas.

China's major stock indexes extended losses on Wednesday, despite pledges by a number of brokerages to increase their stock investments to support the market.

The CSI300 index fell 1.1 percent in afternoon trade while the Shanghai Composite Index lost 0.8 percent, though both were down around 4 percent earlier.

Reuters

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