European stocks, whose declines this week drove some benchmark indexes to the lowest in more than five years, may fall further amid concern that a slide in the dollar's value will stunt profit growth.
"Europe gets a kick in the teeth from a weak dollar," because so much of companies' sales and earnings stem from the US, said David Ballance, who oversees US$800 million as head of European equities at Rothschild Asset Management in London. He bought shares of Suedzucker AG, the world's largest sugar maker, partly because almost all of its revenue comes from Europe.
The Dow Jones Stoxx 50 Index this week slumped 6.6 percent, the biggest weekly decline since July, to its lowest since May 1997. The Stoxx 600 Index lost 5.6 percent, its third straight weekly loss.
Speculation that the US may be headed for war with Iraq, damping economic growth and curbing demand in the world's biggest economy, drove the dollar lower against European currencies. The drop may cut the value of US sales by companies such as Bayer AG, Royal Philips Electronics NV and GlaxoSmithKline Plc.
All of Western Europe's 17 national benchmark indexes fell except for Greece's ASE and Austria's ATX. The UK's FTSE 100 extended a losing streak to 10 days, the longest since its 1984 inception, and reached a seven-year low. France's CAC Index sank 5.2 percent and Germany's DAX fell 6.9 percent.
Bayer, Germany's biggest drugmaker, fell 12 percent this week. Philips, Europe's largest consumer-electronics company, dropped 7 percent. GlaxoSmithKline, the world's second-biggest drugmaker, lost 8 percent. Each gets more than one-quarter of sales in the US or North America.
"The mood in Europe is very dark," said Patrick Nielsen, who oversees US$1 billion at Mapfre Inversion in Madrid. "People are worried about how much the dollar's fall is going to hurt exporters."
Earnings at companies in the 12 countries sharing the euro decline by about 6 percent during a year when the dollar drops 10 percent against the euro, according to Deutsche Bank AG. The US currency has lost about 11 percent against the euro since August.
The US currency has dropped against the euro every day since Jan. 14, the longest losing streak since the European currency started trading four years ago. The dollar sank to a three-year low against the British pound and is the lowest in four years against the Swiss franc.
Reports on business confidence in Germany and France next week and earnings from Pechiney SA, Hennes & Mauritz AB and Stora Enso Oyj may give investors more evidence about the prospects for the economy and profits.
Confidence among German executives improved in January for the first time in eight months, according to economists surveyed by Bloomberg News. The report is scheduled for release Tuesday.
As for their French counterparts, a report due Thursday may indicate that confidence this month rose to a seven-month high, according to economists surveyed by Bloomberg.
Pechiney, the world's fourth-largest aluminum producer, will likely report that 2002 profit dropped 42 percent to 173 million euros (US$186 million), according to the average forecast of six analysts surveyed by Bloomberg News. The French company said in October that the dollar's drop will hurt earnings in the fourth quarter. Pechiney releases its figures on Thursday.
RSS