Sun, Jul 08, 2012 - Page 15 News List

Bad news is still good news for European shares

ON ITS WAY:Analysts bet that European governments would help markets as the mix of bad economic news would leave them with no choice but to intervene

Bloomberg

European stocks rose for a fifth week as investors bet central banks would add to measures to stimulate economic growth, with the STOXX Europe 600 Index paring some gains on concern that risks to a recovery remain.

The STOXX 600 climbed 1.3 percent to 254.4 this week, for the longest stretch of gains since January. The benchmark measure has rallied 8.8 percent from this year’s low on June 4 after policymakers, meeting in Brussels last month, eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.

“Monetary easing by the UK, China’s anticipated rate cut and the lingering good sentiment after the EU summit supported the markets,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than US$2 billion under management. “There’s an accepted view that bad news is also good news. So, bad economic data made some investors think there’s help on the way.”

National benchmark indexes climbed in 11 of the 18 western European markets this week. The UK’s FTSE 100 increased 1.6 percent, France’s CAC 40 fell 0.9 percent and Germany’s DAX lost 0.1 percent. Italy’s FTSE MIB dropped 3.8 percent and Spain’s IBEX 35 retreated 5.1 percent.

Morgan Stanley’s European equity strategy team, including Graham Secker, Ronan Carr and Matthew German, raised the region’s equities to neutral from underweight on Monday last week, saying the decisions at the EU summit had lowered risk.

Arkema, which sold an unprofitable vinyls business, jumped 15 percent as FT Alphaville reported the company received takeover approaches valuing it at 5.5 billion euros (US$6.8 billion) or more. The company has drawn interest from DuPont Co and BASF SE, FT Alphaville reported, citing “usually knowledgeable sources.”

GKN rallied 15 percent after agreeing to buy Volvo’s aircraft-engine unit for £633 million. GKN said it will raise 140 million pounds in a share sale to help pay for the purchase.

Chr Hansen Holding A/S surged 15 percent after the Danish maker of natural food colors and cheese cultures reported earnings that exceeded estimates. Fiscal third-quarter net income was 34.6 million euros, beating the average estimate of 33.1 million euros in a Bloomberg News survey of eight analysts. The company also predicted higher revenue growth for the fiscal year ending Aug. 31.

Volkswagen AG, Europe’s largest carmaker, climbed 5.5 percent after agreeing to buy the controlling stake in Porsche’s automotive business for 4.46 billion euros. The transaction enables VW to fully incorporate Porsche’s automotive business into its stable of brands. Porsche added 2.1 percent.

Italian and Spanish banks sent a gauge of European lenders 1.4 percent lower for the second-worst group performance on the STOXX 600.

UniCredit SpA and Banco Popular Espanol SA slumped 11 percent and 8.8 percent, respectively. Intesa Sanpaolo SpA fell 9.5 percent, while Banco Bilbao Vizcaya Argentaria SA lost 8 percent.

Separately, Credit Suisse Group AG cut the stock to neutral from outperform and Societe Generale SA downgraded its recommendation for the stock to hold from buy.

Rhoen Klinikum AG slumped 12 percent as Fresenius SE said its tender offer failed to win enough shareholder support because rival Asklepios Kliniken GmbH took a 5 percent stake in Rhoen. About 84 percent of Rhoen Klinikum shares were tendered in the offer, Fresenius said after the market closed on June 29. The 22.50 euro-a-share bid was contingent on garnering at least 90 percent of the stock.

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