Print

Mail

wiki links

European equities may slip on poor economic outlook

European stocks may fall for the sixth week in seven on evidence that Germany's economy is stalling, weighing on corporate earnings.

The Dow Jones Stoxx 50 Index dropped 3.7 percent this week as the prospect of companies defaulting on loans hurt shares in banks including Deutsche Bank AG, the region's largest. Credit Suisse Group, Switzerland's No. 2 bank, lost a quarter of its value.

German factory orders probably fell a third month in August, economists said before a report set for Monday.

Other reports may show that industrial production declined in the same month and unemployment rose in September. Germany accounts for about a third of total output from the 12 countries that share the euro.

"I'd be very surprised if the data didn't continue on the gloomy side," said David Ballance, who oversees US$800 million as head of European equities at Rothschild Asset Management. "Markets will drift down a bit more. Earnings estimates are still being cut."

Ballance recently sold stock in SAP AG, the world's biggest maker of business software, and Royal Philips Electronics NV, Europe's largest consumer-electronics maker. He isn't buying shares "because it is hard to find compelling investment ideas."

Sales reports from Carrefour SA, the world's second-largest retailer; L'Oreal SA, the largest cosmetics maker; and Marks & Spencer Group Plc, the UK's biggest clothing retailer; may give an indication of how the economic slowdown is affecting the spending habits of Europe's consumers.

Paris-based Carrefour, which last year got about 80 percent of sales in France and the rest of Europe, fell 3.5 percent this week, taking this year's decline to 30 percent.

L'Oreal, also based in the French capital, shed 0.8 percent this week. Its 6.8 percent decline this year makes it the second-best performing stock in France's CAC 40 Index. Renault, the carmaker, is the best, rising 2.3 percent this year.

Marks & Spencer probably will report on Tuesday that fiscal second-quarter sales grew at their slowest pace for four quarters, analysts said. Next Plc, the UK's third-biggest clothing retailer, dropped 16 percent this week after saying an unusually warm September deterred British consumers from buying winter clothes.

Banks led this week's declines. Goldman, Sachs & Co said Thursday that the region's largest lenders may have to set aside more money for bad debts. Deutsche Bank, which Goldman cut to "market perform" from "market outperformer," lost 13 percent for the week.

The debt of Europe's 154 largest companies has more than doubled in the past three years and this year Moody's Investors Service has made 20 times more credit-rating reductions than upgrades, said Susan Leadem, an analyst at Goldman Sachs.

Declines by Deutsche Bank; Credit Suisse; BNP Paribas SA, France's largest bank; UBS SA, the No. 1 Swiss lender; and HSBC Holdings Plc, Europe's biggest bank by market value; accounted for 44 percent of the Stoxx 50's drop.

Credit Suisse shares tumbled 28 percent to their lowest since March 1993. Analysts estimate the bank had a third-quarter loss of SF1 billion (US$670 million).

S&P this week said it may cut Credit Suisse's credit rating for a second time since June because the company may need more money to shore up its unprofitable Winterthur insurance unit.

Fortis dropped 10 percent this week after Belgium's largest financial services company said the value of its stock holdings fell about 2.1 billion euros below what it paid for them.

Abbey National declined 6.4 percent on Friday after JP Morgan Chase & Co said the UK's No. 2 mortgage lender will probably have to cut its dividend.

"Financials are being hit the most," said Klaus Roepke, who helps manage about US$11 billion at Nordea Investment Management in Copenhagen. Roepke said he holds more health stocks than are represented in benchmark indexes because their income is relatively predictable.
This story has been viewed 1706 times.