Sunday 22 April 2018

European shares fall as Middle East worries hurt oil firm BG

European shares fell today as disruptions to business in the Middle East hurt oil firm BG Group and the threat of a spike in crude prices fuelled profit taking on construction firm Bouygues.

Shares in BG fell 3.9pc after the group said political and social instability in Egypt was delaying projects and Norway said it would reduce its oil output in 2014.

The stock was the biggest faller on the pan-European FTSEurofirst 300 index, which was 0.3pc lower at 1,225.96 points at 0958 GMT. The euro zone Euro STOXX 50 was down 0.4pc at 2,793.55 points.

"It's disappointing in terms of delivery for next year and there are some caveats with regards to the 2015 production, but for reasons that shouldn't be a surprise," said Ivor Pether, senior fund manager at Royal London Asset Management, who owns the stock in his UK Equity Fund.

"The offset (of the disruptions in the Middle East) is the impact on oil prices, which is a net benefit."

Oil prices have risen around 7pc since late July as expectations of U.S.-led military action against Syria stoked concerns about a broader conflict in the Middle East, which would disrupt oil supply.

Societe Generale cited the impact of higher energy costs on profits as the main reason to downgrade French conglomerate Bouygues to "sell" from "hold", sending the stock down 2.5pc after a 30pc rise since late June.

Equity market trading has been choppy over the past month as investors positioned for both a possible attack against Syria and a stimulus cut by the Federal Reserve.

The FTSEurofirst 300, however, is still up 6.4pc since the start of July, more than twice as much as the U.S. S&P 500 , as improving data in Europe made the region's valuations more attractive to investors.

Europe equity funds extended their longest inflows streak since 2006 in the seven days to last Wednesday, moving against outflows for U.S. and emerging market equity funds, EPFR data showed.

"It's a realisation that tail risks are gone and the data is better," Grant Lewis, head of research at Daiwa Capital Markets, said.

"Whether you get a continuation of equity market strength, I'm not sure. There are still significant challenges in the periphery."

Concerns centre on Italy where parliamentarians meet to consider expelling former prime minister Silvio Berlusconi after his conviction for tax fraud, a decision that could shatter the fragile ruling coalition and plunge the country into fresh political crisis.



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