Italian slump sends European shares lower
A sharp fall on the Milan stock market hit European shares yesterday, with uncertainty over this weekend’s Italian elections pushing a key eurozone equity index to its lowest level since the start of 2013.
The eurozone’s blue-chip Euro STOXX 50 index fell 2.3 per cent to 2,579.76 points, marking a fresh low for 2013 and sending it to its lowest close since ending at 2,575.25 points on November 30.
The pan-European FTSEurofirst 300 index also declined 1.5 per cent to 1,151.61 points - its worst finish since ending on 1,148.28 points on February 7.
Italy’s benchmark FTSE MIB was Europe’s worst-performing stock market, falling 3.1 per cent, on uncertainty over the outcome of the elections on February 23-24.
Most investors expect a centre-left government headed by Pier Luigi Bersani and backed by current Prime Minister Mario Monti to win and continue with reforms to tackle Italy’s debt problems.
However, a resurgence by former leader Silvio Berlusconi has caused growing doubts over the outcome.
“If Berlusconi were to get more votes than currently forecast, and no government can be formed, it may provoke a market rout, with serious European contagion,” said Integrated Asset Management head Emanuel Arbib.
The STOXX Europe 600 banking index, seen as the most sensitive to signs of problems in the eurozone, was the worst-performing equity sector, falling 2.5 per cent.
Arbib said he was not taking any big trading positions ahead of the elections, and growing worries over the outcome were reflected in a rise in volatility on European markets, with the Euro STOXX 50 Volatility index rising 9.7 per cent.
However, other traders and dealers were more confident over the Italian situation, expecting that any sell-off linked to it would be relatively small and short-lived, before equity markets resumed an upwards trajectory again in late March or April.
Mike Turner, European equity options broker at XBZ Ltd, said he had not noticed clients buying “put” options to bet on a market fall in the run-up to the Italian vote.
Turner felt the sell-off reflected profit-taking by investors, following a rally in January with the FTSEurofirst still up around two per cent since the start of 2013, rather than deeper worries over the eurozone’s economic problems.
“Some of the gloss to the rally has been removed but it’s more of a corrective sell-off rather than a negative one,” he said.
The FTSEurofirst remains up from a 2013 low of 1,132.73 points. The Euro STOXX 50 is also up some 26 per cent from lows reached last June, after a pledge by the European Central Bank (ECB) last year to do “whatever it takes” to protect the euro currency lifted equity markets.
Rupert Baker, a European equity sales executive at Mirabaud Securities, said investors were still buying up shares on days when the market fell for relatively cheap prices, on expectations of a gradual rise in European equities in 2013.
“Private client fund managers are still inclined to buy on the dip,” he said. (Reuters)