European shares recover; market eyes Cyprus compromise

European shares broke a three-day losing streak yesterday as investors bet on policymakers finding a fix for Cyprus’ bailout problems, although some traders cautioned against buying up equities at current levels.

The pan-European FTSEurofirst 300 index closed up 0.3 per cent at 1,198.88 points while the euro zone’s blue-chip Euro STOXX 50 index rose 1.4 per cent to 2,708.90 points.

A 2.5 per cent gain at Sanofi added the most points to the FTSEurofirst 300 and sent the drugmaker to seven-year highs, as traders cited speculation that Sanofi could get regulatory approval forits Aubagio multiple sclerosis treatment pill.

European banks also featured on the FTSEurofirst 300 leaderboard, on expectations that policymakers would find some solution for Cyprus’ funding crisis to prevent any major repercussions from Cyprus’ troubles. Union Bancaire Privee fund manager Rupert Welchman felt the support of the European Central Bank (ECB) was sufficiently strong to prevent any major market hit from Cyprus, which rejected a proposed levy on bank deposits as a condition for a European bailout earlier this week.

“You’ve still got the ECB saying it will provide liquidity,” said Welchman, whose portfolio is overweight on northern European finan-cial stocks.

“Cyprus will, of course, be a clear negative for European sentiment and it is a new and substantial negative, but the bigger picture is that Europe is trying to follow a roadmap to recovery and in this quest, Cyprus is a sideshow,” he added.

In spite of Cyprus’ woes, investors have stuck with a longer-term bullish outlook for European equities.

Equity markets have been propped up by injections of liquidity by the world’s central banks, and a Reuters poll this week forecast that the Euro STOXX 50 would rise to 2,800 points by the end of June, and to 2,935 points by the end of December. The broader STOXX Europe 600 index was seen rising to 305 points by end-June and to 317 points by the end of 2013.

Investors have been encouraged by pledges from the ECB last year to defend the euro currency, which led to stock markets rallying in the second half of 2012.

Expectations that problems over Cyprus and Italy’s political deadlock will only cause a minor, short-lived pull-back on equity markets in March and April have led some investors to buy up shares on days when stock markets fall.

However, technical analysis firm Lowry Research said investors should wait for better opportunities to buy into the German DAX and Euro STOXX 50, since both indexes looked set for short-term weakness.

Market conditions in Germany are representative of the European region as a whole.