European shares climbed to a three-week high in thin volumes yesterday, extending a strong two-week rally fuelled by record inflows from an increasing number of investors betting on the region’s economic recovery.
Data showing brisk lending in China, the world’s biggest metals consumer, boosted miners, with BHP Billiton and Glencore Xstrata rising 1.2 per cent and 1.8 per cent respectively. The European mining index, was among the top sectoral gainers, up 1.1 per cent, while Britain’s commodity-heavy FTSE 100 rose one per cent.
The FTSEurofirst 300 of top European shares ended 0.4 per cent higher at 1,337.06 points, the highest close since late January.
However, volumes on the index, which has gained in eight of the past nine sessions, were just 69 per cent of its 90-day daily average due to a holiday in the United States. Data from EPFR Global showed European equity funds have enjoyed net inflows of $17 billion since the beginning of 2014, marking a record start to the year and in sharp contrast to massive outflows from emerging market funds.
“One of the most popular pairs trade at the moment is being ‘long’ on shares that have no exposure to emerging markets and ‘short’ on shares that have a strong exposure to them. This has worked really well in January and it could continue,” said Nicolas Rousselet, head of hedge funds and managing director at Unigestion in Geneva.
EPFR said that within Europe, equity funds focused on Italy and Spain have been leading the way in terms of inflows. Both countries have recently seen their bond yields retreat sharply.
Italian 10-year government bond yields hit an eight-year low yesterday, after ratings agency Moody’s lifted its outlook on the country’s credit rating to ‘stable’ from ‘negative’ and as Rome prepared for a new government.
“Investors are quite sanguine about the economic and political situation in peripheral Europe, and that’s a very positive signal,” said David Thebault, head of quantitative sales trading at Global Equities in Paris. “Ten-year bond yields continue to fall across the board, a sign of stability which has prompted a lot of investors to come back.”
Italy’s FTSE MIB was up 0.1 per cent after outperforming the wider market on Friday with a 1.6 per cent rally as investors welcomed the prospect that centre-left leader Matteo Renzi will become prime minister.
The MIB is up nearly eight per cent so far this year, trading at a two-and-a-half year high and strongly outperforming a 1.6 per cent rise in the FTSEurofirst 300 in 2014. (Reuters)
European shares have been supported by relatively good corporate results in the current earnings season, with 58 per cent of companies reporting in-line or better-than-expected profits, according to Thomson Reuters Starmine.
While in absolute terms net profits are still falling, a pick-up in corporate revenue, up 2.3 per cent overall, and a slight improvement in economic growth in the euro zone is fuelling investors’ hopes that earnings will pick up this year.
Bucking the trend yesterday, Norwegian fertiliser producer Yara fell 2.8 per cent, the top decliner on the FTSEurofirst 300, after UBS cut its stance on the stock to “neutral from “buy”.
Neste Oil dropped 4.4 per cent after Nordea lowered its rating on the Finnish oil refiner to “hold” from “buy”, citing uncertainty over US policies on biodiesel, including volume targets and tax credits.