Bloomberg News

European Stocks Post Fourth Week of Losses Amid Stimulus Concern

June 14, 2013

European stocks fell for a fourth week, the longest streak of losses in more than a year, as concern grew that central banks may reduce stimulus measures.

Severn Trent Plc posted the biggest weekly drop in more than 4 1/2 years as a consortium of bidders abandoned an offer for the water utility. Legrand (LR) SA had the largest weekly decline in a year as Wendel SA sold shares in the company. Kabel Deutschland Holding AG surged 11 percent after Vodafone Group Plc approached the German cable operator about a takeover.

The benchmark Stoxx Europe 600 Index slid 1.5 percent to 291.13 this week, the longest stretch of declines since April 2012. The measure has retreated 6.3 percent since Federal Reserve Chairman Ben S. Bernanke said May 22 that the central bank may lower its stimulus measures if the U.S. economy improves sustainably.

“What we’re seeing in the markets now is a correction,” said William de Vijlder, chief investment officer at BNP Paribas Investment Partners, which oversees 503 billion euros ($671 billion). “Before Bernanke spoke, markets were driven by enthusiasm about quantitative easing. The big change is the view on the ground that the most important central bank in the world might do something about its unconventional monetary policy.”

Stocks fell as investors also speculated that the market rally has overshot the earnings outlook. Shares on the Stoxx 600 rose to 13.5 times estimated earnings on May 17 from 9 times in September 2011. That’s the highest valuation since the end of 2009. Stocks on the index traded at 12.9 times projected earnings as of June 14, according to data compiled by Bloomberg.

Global Stocks

The MSCI All-Country World Index advanced 20 percent from a November low through May 21, and has retreated 4.3 percent since then. Japan’s Nikkei 225 (NKY) Stock Average entered a bear market this week as it plunged more than 20 percent from its May 22 high through June 13.

National benchmark indexes fell in 16 of the 18 western-European markets this week. The U.K.’s FTSE 100 lost 1.6 percent. France’s CAC 40 decreased 1.7 percent and Germany’s DAX Index (DAX) declined 1.5 percent.

The Bank of Japan on June 11 refrained from additional stimulus measures to raise inflation and boost growth, continuing its April pledge to increase the monetary base by 60 trillion yen ($620 billion) to 70 trillion yen a year. Japan’s economy expanded an annualized 4.1 percent in the first quarter, compared with a preliminary calculation of 3.5 percent, a Cabinet Office report showed on June 10.

In Indonesia, the central bank this week unexpectedly raised its key interest rate for the first time since 2011.

U.S. Data

In the U.S., retail sales climbed in May more than forecast, Commerce Department data showed. A separate report the same day showed jobless claims fell more than estimated in the week ended June 7.

The Thomson Reuters/University of Michigan June preliminary index of consumer sentiment fell to 82.7 from a final reading of 84.5 the prior month, missing economist forecasts, a report showed today.

Greece became the first developed country to be cut to emerging-market status by MSCI Inc. The country failed to meet criteria regarding securities borrowing and lending facilities, short selling and transferability, according to a June 11 statement from MSCI, whose equity indexes are tracked by investors with about $7 trillion in assets.

The Mediterranean nation’s benchmark ASE Index (ASE) dropped 6.8 percent this week as politicians wrangled over the closure of the state-controlled broadcaster ERT, renewing concerns about the stability of the Greek government.

Severn Trent

Severn Trent slid 15 percent, its biggest weekly drop since October 2008. A bidding group led by Canada’s Borealis Infrastructure Management Inc. abandoned a 5.3 billion-pound ($8.3 billion) plan to take over the water utility as a deadline expired on June 11.

Legrand declined 5.9 percent, the largest weekly decline since June 2012. Wendel, France’s biggest publicly-traded investment firm, sold the remaining 14.4 million shares it held in the world’s largest maker of switches, plugs and lighting controls on June 11.

Royal Bank of Scotland Group Plc slid 3.5 percent after saying June 12 that Chief Executive Officer Stephen Hester will resign this year. Hester said he is stepping down at the board’s request as the state-controlled British bank prepares for privatization.

Kabel Deutschland advanced 11 percent, the biggest weekly gain since at least April 2010, after Vodafone said June 12 that it made a “preliminary approach” to discuss acquiring the German cable operator to expand in the broadband and TV markets.

Vodafone Bid

Vodafone will bid for Kabel within days, Wirtschaftswoche magazine reported on June 14, citing unidentified bankers. The offer would have to exceed 10 billion euros, including debt, according to the report.

The world’s second-biggest wireless carrier tumbled 6.2 percent. A gauge of telecommunications companies dropped 3.1 percent this week for the worst performance among 19 industry groups in the Stoxx 600.

Rhoen-Klinikum gained 6.2 percent after shareholders abolished a 90 percent voting threshold for mergers and other decisions. The German hospital operator said June 13 that shareholder B. Braun Holding GmbH is legally challenging the decision.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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


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