Bloomberg News

European Stocks Post Second Weekly Drop on Greek Election

May 11, 2012

European stocks declined for a second week after an inconclusive election in Greece left political parties struggling to form a government, increasing speculation that the nation might fail to implement austerity measures.

Mining companies led losses as Chinese industrial output cooled. Bankia SA slid 16 percent as Spain took control of the lender. Vallourec SA, a French producer of steel pipes for the oil and gas industry, tumbled the most since 2008 after cutting its forecasts. Royal KPN NV rose 20 percent after rejecting a 2.6 billion-euro ($3.4 billion) offer from Carlos Slim’s America Movil SAB for a bigger stake in the Dutch phone company.

The Stoxx Europe 600 Index (SXXP) retreated 0.4 percent to 251.97 this past week. The measure slid to the lowest level in almost four months on May 9, before rebounding 0.9 percent over the next two days. The gauge has retreated 7.5 percent since this year’s high on March 16 as concern grew that the euro area might fracture and Chinese economic growth missed forecasts.

“Investors are starting to ask what happens after a country leaves the euro area, which was supposed to have been a rock-solid bloc,” said Henrik Drusebjerg, a senior strategist at Nordea Bank AB in Copenhagen, where he helps oversee $230 billion. “The risk is that it will take massive resources to keep interest rates under control in Italy and Spain if Greece leaves the monetary union.”

National benchmark indexes fell in nine of the 18 western- European markets this week. The U.K.’s FTSE 100 declined 1.4 percent. France’s CAC 40 lost 1 percent as Francois Hollande was elected president. Germany’s DAX advanced 0.3 percent. Greece’s ASE Index plunged 11 percent to the lowest level since 1992.

Greek Election

Voters in Greece flocked to anti-austerity parties in the May 6 election. New Democracy won 19 percent of the total vote and 108 seats in the 300-seat parliament. Pasok, the Socialist party that partnered with New Democracy in securing a second rescue package for the country, trailed in third place while Syriza, a coalition of left-wing parties that has vowed to cancel the bailout terms came second.

Greece’s political impasse raised the possibility another election will have to be held as early as next month. The standoff has reignited European concern over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010 and sparked concerns about the country leaving the euro.

BHP Billiton Ltd. and Rio Tinto Group, the biggest mining companies listed in London, dropped 2.8 percent and 2.3 percent, respectively. Lonmin Plc, the third-largest platinum producer, tumbled 8.6 percent. Basic-resources companies were the worst performing industry group in the Stoxx 600 as copper fell in London for a second week.

Chinese Economy

China’s industrial production rose the least since 2009 in April, retail sales and new lending gained less than estimated, and exports also tailed forecasts.

Europe’s economy will fail to grow this year with risks to the outlook “tilted to the downside” after nations from Spain to Italy slipped into recession, the European Commission said yesterday. Gross domestic product in the 17-nation euro area will drop 0.3 percent, the commission estimated, reiterating a February forecast.

“Some investors believe things are falling apart, though others still think stocks are cheap -- but most likely stocks will have a hard time until we’re well into the summer,” said Hans Peterson, the chief investment officer at SEB Private Banking in Stockholm. “When we get into the summer, we’ll see some very attractive entry points for investors to get back into shares.”

Bankia Nationalization

Bankia plunged 16 percent this week after Spain took control of the lender on May 9. The nationalization gives the government a controlling stake of 45 percent in Bankia and the Economy Ministry said it will provide the capital that’s “strictly necessary” to clean up the lender.

Spain will force banks to increase provisions against real estate loans by about 30 billion euros and will hire two auditors to value lenders’ assets in a fourth attempt to clean up the industry, Economy Minister Luis de Guindos said yesterday. Spain is making a fourth attempt to convince investors its banking system is solid after failing to do so with three prior tries in as many years.

Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, the biggest Spanish lenders, jumped 4.1 percent and 4.3 percent, respectively, the biggest gains in at least three months.

In France, Hollande defeated President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy. He pledged to push for less austerity and more growth in the region.

‘Open Arms’

German Chancellor Angela Merkel said she will welcome Hollande with “open arms,” while rejecting government stimulus as the way to spur economic growth in Europe.

Vallourec lost 21 percent after cutting its forecast for sales growth by half and missing profit estimates. Revenue will grow about 5 percent this year, the Boulogne Billancourt, France-based company said, compared with an earlier forecast of about 10 percent.

Kloeckner & Co. SE, Europe’s largest independent steel trader, dropped 11 percent after posting a first-quarter loss that was about 11 times wider than analyst estimates.

KPN, the biggest Dutch phone company, jumped 20 percent after rejecting an unsolicited 2.6 billion-euro offer for a larger stake by America Movil.

CSM, the world’s biggest maker of bakery ingredients rallied 19 percent as the company said it will sell U.S. and European bakery-supply units to fund the Purac and Caravan bio- based ingredients brands’ growth.

Deutsche Telekom AG climbed 5.2 percent as Europe’s second- largest phone company reported earnings that beat analysts’ estimates and was said to discuss a merger of its T-Mobile USA unit with MetroPCS Communications Inc.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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