Dexia slides on Moody’s warning; Alcatel hit by bearish broker report
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock markets pared losses Monday after better-than-expected U.S. manufacturing data, while news that Greece won’t meet its deficit targets this year still weighed on sentiment.
The Stoxx Europe 600 index XX:SXXP -0.76% fell 1% to 223.9 in afternoon trading, as the fourth quarter kicked off. The index closed out the third quarter with the largest point and percentage declines since December 2008 owing to twin worries about European debt and growth.
Stocks pared losses Monday after data showing the ISM manufacturing index for September rose to a better-than-expected 51.6% from 50.6% in August. Wall Street turned positive in choppy trading action.
Worries about Greece still weighed on markets. The draft 2012 budget approved by the Greek cabinet on Sunday showed a deficit of 8.5% of gross domestic product for 2011, which would fall short of a target of 7.6%. The deficit, as forecast, would also fall short in 2012 — 6.8% versus a 6.5% target.
Across Europe, banks were under pressure, with shares of BNP Paribas FR:BNP -5.81% and Societe Generale SA FR:GLE -4.88% both off around 5%, while Commerzbank DE:CBK -5.90% shed 6.3% and ING Groep NV ING -3.97% NL:INGA -6.13% traded down 5.3%.
European finance ministers gathered in Luxembourg on Monday to discuss Greek reform. However, a decision on the next tranche of aid, vital if Athens wants to avoid a near-term default, has been delayed until around mid-October.
Banks, autos under pressure
The Athens General Index GR:GD -2.40% fell 4%, with shares of Alpha Bank AE sinking 6.8%, Piraeus Bank SA losing 6.4% and National Bank of Greece SA NBG -7.89% sliding 7%.
Meanwhile, shares of Dexia SA BE:DEXB -9.68% tumbled nearly 10% after Moody’s Investors Service said it may downgrade the bank on concerns it may have trouble getting market funding. Media reports said that French and Belgian officials are set to meet to discuss a rescue package for the bank, which has heavy exposure to Greek debt. A Dexia representative couldn’t immediately be reached for comment.
The German DAX 30 index DX:DAX -1.25% skidded 2% to 5,385.98, with auto makers also falling sharply — BMW AG DE:BMW -5.91% down 5.3% and Volkswagen AG DE:VOW3 -5.00% off 4.5% — on continued worries that China’s economy may slow.
The French CAC 40 index FR:PX1 -1.27% fell 2% to 2,922.74, with banks providing the main drag, while car makers like Renault SA FR:RNO -3.53% and Peugeot SA FR:UG -3.31% followed sector weakness with declines of 2.2% and 2.8%, respectively.
A top decliner in Paris was telecom-equipment firm Alcatel-Lucent FR:ALU -9.75% ALU -8.66% , shares of which sank 10% after Nomura cut its view on the sector to bearish from neutral.
The broker also lowered earnings per share and price target estimates for both Alcatel-Lucent and Ericsson ERIC -1.15% SE:ERICB -1.95% , saying it sees more downside at Alcatel-Lucent. Shares of Ericsson fell 3.3% in Stockholm.
Banks also fell in London, with Royal Bank of Scotland Group RBS -2.38% UK:RBS -3.82% sliding 4.1% and Barclays PLC BCS -0.82% UK:BARC -2.51% moving down 3.3%. The FTSE 100 index UK:UKX -1.14% fell 1.4% to 5,057.33.
After Europe’s worst quarter in three years, investors’ appetite for stocks in the region remains sorely tested. Read: Case for international stock funds gets tougher
Justin Urquhart Stewart, co-founder of Seven Investment Management, said investors should avoid banks and consumer stocks. The focus should be on companies that will still prosper despite European issues, though he noted share prices of all companies will continue to reflect those problems.
Companies like Siemens AG DE:SIE -2.22% SI -0.48% , Nestle SA CH:NESN +0.50% NSRGY +0.56% , Unliever PLC UK:ULVR -1.04% and Royal Dutch Shell PLC RDS.A -1.32% UK:RDSA -1.58% are all going to be “carrying on business as usual, building up cash,” said Urquhart Stewart.
”Investors should take comfort from the fact that most of the long-term returns come from compounding dividends, not from spectacular share prices,” he said.
China weighs on miners, luxury goods
Mining stocks also contributed to the weaker tone for London, with copper futures down 2.8%. Gold and silver prices were higher as investors sought out safe-haven assets.
Urquhart Stewart said losses for base metals were “reflecting fear over China, while silver and gold are just reflecting fear.” He said fears about Chinese growth, stemming from a survey last week that showed weak manufacturing growth, are “going around and gaining more credence.”
Among metals stocks, Vedanta Resources PLC UK:VED -6.90% fell 6.6%, Rio Tinto PLC UK:RIO -1.75% RIO -0.59% slid 2.5% and Xstrata PLC UK:XTA -3.07% sank 4%. Randgold Resources Ltd. UK:RRS +3.50% rose 3.4% and Fresnillo PLC UK:FRES +1.77% gained 1.8% on higher gold and silver prices.
China worries also weighed on the luxury-goods sector, which extended last week’s losses. Shares of Burberry Group PLC UK:BRBY -4.69% shed 5% and Hermes International ScA FR:RMS -2.77% tumbled 3%.
