European shares edged up, led by robust results from Dutch technology firm ASML yesterday, but concerns about earnings across the broader market kept a lid on the day’s advance.
ASML, the world’s leading provider of tools for making computer chips, was the top performer on the FTSEurofirst 300 by far, up seven per cent, after it beat forecasts for its fourth-quarter results and reiterated its upbeat outlook for first-half sales.
But Swiss engineer ABB fell 3.6 per cent to the bottom of the index when it flagged that its power division would miss profit targets after $260 million in charges due to project delays and restructuring costs.
While 68 per cent of companies that have reported so far have beaten or met forecasts for annual earnings, expectations for reports later on in the season are falling as companies such as ABB and Royal Dutch Shell have issued profit warnings.
Some investors had been hoping for a strong earnings season to drive any further share price gains, with valuations in some sectors now sitting at bloated levels after a bumper 2013.
“For some of the areas of the market that are now trading on higher valuations and factoring in a fairly vigorous earnings recovery over the next couple of years, I think increasingly this earnings season is problematic and a headwind for them,” Ian Richards, strategist at Exane BNP Paribas, said.
The pan-European FTSEurofirst closed up 0.1 per cent at 1,347.05, leaving it just shy of a fresh, multi-year high
Sectors with aggressive valuations include chemicals and industrials, which trade on respective 12-month forward price/earnings ratios of 14.96 times and 15.6 times, against the STOXX Europe 600 on 13.7 times, Thomson Reuters Datastream shows.
The pan-European FTSEurofirst closed up 0.1 per cent at 1,347.05, leaving it just shy of a fresh, multi-year high touched on Tuesday at 1,353.47.
The eurozone’s blue-chip STOXX 50 shed 0.1 per cent to 3,151.27 points. Technical charts pointed to further consolidation for the Euro STOXX 50, which has already broken above the key 3,050 area that previously acted as a resistance level.
“The lows of January 14, at 3,072, (are) a potential accumulation zone. I wouldn’t want to flip that trade unless we started breaking down through this year’s lows - then I’d have to think about more of a squeeze to the downside,” Barclays Capital analyst Lynnden Branigan, said.
Portuguese shares sharply underperformed the broader market, down 3.3 per cent, pressured by a slump in the country’s banks after the government doused expectations that deferred taxes would be converted into credits, traders said.