European shares hit a six-week closing low yesterday as reduced chances of an immediate military strike on Syria weighed on energy equities due to weakened oil prices, although longer-term market outlook stayed bright.
Oil majors Royal Dutch Shell, Total, BP and BG Group, down 1.0 to 1.4 per cent, were among the companies that took the most points off the pan-European FTSEurofirst index.
The European oil and gas index fell 1.3 per cent, mirroring a sharp drop in oil prices as concerns over supply disruptions in the Middle East eased after Britain said it would not join any military action against Syria.
Energy stocks put pressure on the wider market, with the FTSEurofirst index dropping 1 percent to 1,195.01, the lowest close since mid-July. Its 2.3 per cent fall this week was the biggest since June.
“Concerns of an immediate military action have eased to some extent, but uncertainty continues,” Frank Bonsee, equity sales trader at ABN Amro, said.
“The geopolitical situation could quickly turn and prompt investors to take more money off the table. Everyone is extremely cautious in the current environment and has got a wait-and-watch approach.”
Portuguese shares, down 1.6 per cent, underperformed the market on concerns about the country’s finances after a court rejected a bill that would have allowed public sector workers to be fired in an effort to cut costs.
European cyclical stocks bore the brunt of the wider market sell-off as persistent concerns that an improving economic outlook in the United States would prompt the country’s central bank to start reducing its ample liquidity support prompted investors to retreat on the last trading day of the month.
Sectors such as autos, banks and insurers , which enjoyed a long rally on the back of US monetary stimulus, fell more than one per cent.
However, the longer-term outlook for equities remained positive on an improving global economic picture and attractive valuations compared to historical standards.
“We still believe in the longer-term prospects for the global recovery,” Oliver Wallin, investment director at Octopus Investments, said.
“In the near term we are buying during dips.”
Wouter Sturkenboom, strategist at Russel Investments, said the STOXX 600 could rise 10 per cent to 15 per cent to trade at 14 times its expected earnings in the following 12 months, compared to 12.6 currently.
Among individual movers, Telecom Italia rose 10 per cent on speculation it might be the next target in a recent upsurge in merger activity in the sector.
KPN fell 3.4 per cent after America Movil threatened to abandon its €7.2 billion bid for the Dutch telecoms group. (Reuters)