Europe stocks split on Trump win with pharma gaining

by
Investec
My articles My booksMy videos
Follow on:Twitter

While the bearish sentiment that engulfed European equities in recent weeks is being vindicated, health-care stocks are easing the pain.

The region’s largest industry group headed for its biggest jump in more than 14 months, tempering losses for equity benchmarks after Donald Trump won the race to govern the region’s biggest export market. Novo Nordisk A/S and Shire Plc rose more than 5 percent, after investors punished the shares in recent weeks amid disappointing earnings and speculation Hillary Clinton would push for drug-price controls as president. Citigroup Inc. had cut its rating on the firms in September because of the vote.

© Jan Sučko | Dreamstime.com - Click to enlarge

Still, risk aversion was evident among most other industry groups. The Stoxx Europe 600 Index lost 1 percent at 11:44 a.m. in London, trimming an earlier drop of as much as 2.4 percent, with automakers leading declines. Germany’s Daimler AG and BMW AG slipped at least 3.7 percent. Spanish lender Banco Bilbao Vizcaya Argentaria SA, which has high exposure to Mexico, lost 8.9 percent. The volume of shares changing hands was double the 30-day average. The VStoxx Index tracking euro-area equity volatility fell 3.9 percent as Trump’s win ended uncertainty over the outcome of the election.

Vestas Wind Systems A/S, which sells wind turbines in the U.S., dropped to a four-month low on concern Trump’s victory threatens investment in renewable energy. Commodity producers provided support as base and precious metals advanced. Randgold Resources Ltd. and Fresnillo Plc jumped at least 7.2 percent as gold headed for its biggest rally since the Brexit referendum. Construction firms with operations in the U.S. got a boost from Trump’s pledge to increase infrastructure investment in his post-election speech, with CRH Plc and Skanska AB up more than 3 percent.

© Deanpictures | Dreamstime.com - Click to enlarge

“In the medium-term, I am tempted to say very little will change,” said Stephen Macklow-Smith, who helps manage $2.2 billion of European equities for JPMorgan Asset Management in London. “People will go back to fundamentals: economic recovery is continuing around the world, and Trump will inherit the U.S. economy in pretty good shape. In the next three-to-six months, people will refocus on the recovery in economic growth and potential improvement in corporate earnings in Europe.”

A win for Trump is a further challenge for a bloc that has had to contend with the U.K. secession vote, as well as doubts over the health of its lenders and the efficacy of central-bank stimulus. While those concerns hurt companies dependent on domestic demand earlier in the year — just as a strengthening U.S. economy helped buoy exporters — the tables turned in the past weeks amid angst that the outcome of the presidential election could damp global trade.

Here are the moves for the region’s major national indexes:

• Germany’s DAX Index lost 1.6 percent, led by BMW.
• France’s CAC 40 Index fell 1.7 percent, led by Renault SA.
• The U.K.’s FTSE 100 Index slid 0.7 percent, dragged by J Sainsbury Plc.
• Spain, Portugal and Italy posted the biggest losses in Europe.

A Goldman Sachs Group Inc. index of European firms that get about half of their sales from the U.S. declined 5.9 percent from the market’s peak in September through yesterday, compared with a drop of just 2.4 percent for a gauge tracking companies that mostly rely on Europe. European firms that sell to America have fared better than members of the domestic-exposed measure every year but one since 2008.

European companies get about 17 percent of their total revenue from North America, with those in Belgium, Ireland and Switzerland among the most exposed, Morgan Stanley estimated in May. Europe is also the only region in the world that gets the majority of its sales from overseas, making it particularly vulnerable to global economic and political risks and to currency fluctuations. The euro climbed 0.6 percent, after earlier rising as much as 2.5 percent against the dollar. A stronger euro makes European products less competitive abroad.

Through Tuesday, the Stoxx 600 had already lost about twice as much as the S&P 500 Index since a high on Sept. 5, while the region’s volatility gauge posted its second-longest run of gains on record. The European equity measure fell to a four-month low on Friday, completing its longest stretch without progress since 1994, amid a global selloff as the Federal Bureau of Investigation reignited controversy over Hillary Clinton’s e-mails. A subsequent second exoneration provided a fillip for the shares in the past two days.

“The strong trading links and the fact that major European companies are pretty active in the U.S. make this a pretty significant outcome for stocks over here,” said Dirk Thiels, head of investment management at KBC Asset Management in Brussels. “The reassuring thing is that the U.S. economy seems to be doing alright and a new president shouldn’t have a direct effect on the U.S. consumer.”

Among stocks moving on corporate news:

• EON SE fell 1 percent as it heads for a third consecutive annual loss after reporting more billion-euro writedowns linked to the listing of its fossil-fuel plants and trading business.
• Munich Re lost 3.3 percent after the world’s biggest reinsurer reported lower-than-forecast third-quarter profit.
• Osram Licht AG retreated 2.9 percent after fourth-quarter sales missed analyst expectations and profit dropped.
• Sainsbury fell 5.3 percent after the U.K. retailer forecast profit to be squeezed in the back half of the fiscal year from a price war and increasing staffing costs.
• Burberry Group Plc slid 2.6 percent after the luxury-goods maker posted a drop in first-half profit that met estimates, failing to match rivals that reported better-than-expected results.
• SSE Plc lost 2.6 percent after Britain’s second-biggest energy supplier reported lower profits from its wholesale and retail businesses.