European shares shed some of their gains from the US Fed’s decision to keep its stimulus programme in place but still ended up for their third straight week.
The FTSEurofirst 300 closed down 0.3 per cent at 1,262.61 points yesterday, having hit its highest level since mid-2008 in the previous session.
The eurozone’s blue-chip Euro STOXX 50, which on Thursday rose to a level not seen since mid-2011, slipped 0.3 per cent, while Germany’s DAX, off 0.2 per cent, fell back from fresh all-time highs reached in the previous session.
Germany’s No. 2 utility RWE AG was among the biggest losers across Europe, down 3.9 per cent, after it slashed its dividend.
Adidas also came under pressure, dropping three per cent after the German sports apparel maker warned on its 2013 profit outlook.
Equity markets took a leg down yesterday after St Louis Federal Reserve President James Bullard told Bloomberg television that a slowing of asset-purchases in October was possible depending on incoming data.
But analysts say that while a lack of clarity over when US stimulus will be scaled back could unleash volatility into the markets, they remain bullish on European equities given improvements in the global growth picture.
“The end result of everything that (the Fed has) achieved is just to introduce an added source of uncertainty... We are scrambling to put months to the eventual introduction of tapering,” Ian Richards, head of equity strategy at Exane BNP Paribas, said.
“I think yesterday’s sugar rush was misplaced but ultimately I don’t think this materially changes the investment case.”
Goldman Sachs, in a note, says it believes that global growth will continue to accelerate through 2014, something it expects to translate into strong earnings growth for the market.
Germany’s DAX looks attractive in this context, the investment bank says, noting that it tends to have higher operating leverage than the market and “should therefore gain more as global growth improves”.
The DAX trades on a 12-month forward price/earnings ratio of 11.5 times, against the STOXX Europe 600 on a 12.9 times 12-month forward PE, Thomson Reuters Datastream shows.
Flows into European equities from US-based funds accelerated in the week ended September 18, according to Lipper data, with the region’s stocks enjoying their third-biggest weekly net inflows since Lipper started to track the data in 1992. (Reuters)