European shares fall on weak earnings, emerging market concerns

Thu Jan 30, 2014 4:42am EST

* FTSEurofirst 300 down 0.6 percent

* Roche, TeliaSonera, Diageo drop on earnings news

* Weak Chinese data weighs on sentiment

By Tricia Wright

LONDON, Jan 30 (Reuters) - European shares fell on Thursday, losing ground for the fifth time in six sessions, pressured by weaker earnings and with emerging markets concerns continuing to take their toll on market sentiment.

Roche was a big drag on the FTSEurofirst 300, down 1.2 percent after the Swiss drugmaker posted lower-than-expected profits and raised its dividend less than expected.

And Nordic telecom operator TeliaSonera fell 3.9 percent, as it said it expected flat sales and margins in 2014 after reporting fourth-quarter profit below expectations.

Investors have been on edge in recent days as unease about slowing Chinese growth and the withdrawal of U.S. monetary stimulus spread from emerging market currencies to the world's big stock markets.

European stocks have come under intense selling pressure, with the FTSEurofirst 300 index of top European shares losing nearly 5 percent in six sessions, as investors have dumped risky assets such as equities. The FTSEurofirst 300 was down 0.6 percent at 1,282.70 points by 0914 GMT.

Pointing to a weak start for China's economy in 2014, the Markit/HSBC final manufacturing PMI for January dipped to 49.5 from December's 50.5. A reading below 50 indicates a contraction while one above shows expansion. The figure was in line with the 49.6 reported in the preliminary version of the PMI released a week earlier.

Late on Wednesday, the Fed said it would trim its bond purchases by another $10 billion, as it stuck to a plan to scale back its stimulus despite recent turmoil in emerging markets.

"Of course at the end it's very good news that things are going back to normal," said Marc Renaud, chairman of Paris-based Mandarine Gestion, referring to the Fed tapering.

"But in terms of short-term risk, and we can see it in companies' figures for the third and fourth quarters, this emerging markets risk is huge."

Spirits maker Diageo was a big faller on Thursday, off 5.8 percent and knocking most points off the FTSEurofirst 300, after saying its net sales growth slowed in the latest period, hurt by weakness in China, Thailand and Nigeria.

Alongside the emerging market worries, investor concern has focused on the current earnings season, and whether it will result in profits strong enough to justify lofty valuations after a bumper 2013.

The STOXX Europe 600 is trading on a 12-month forward price/earnings ratio of 14 times against its 10-year average of 11.9 times, Thomson Reuters Datastream shows.

"Clearly what's going on in emerging markets is... subduing risk appetite a little bit in the short term and... it's coinciding with the bottom-up earnings news which is pretty mixed," Peel Hunt equity strategist Ian Williams said.

"I just don't know how you can justify further multiple expansion at the moment. The reasons for that multiple had a lot to do with central bank stimulus which has not been withdrawn yet but is certainly not continuing at the pace it was."

According to StarMine SmartEstimates, which focus on the up-to-date predictions of the historically most accurate analysts, STOXX Europe 600 companies are on average seen missing consensus quarterly profit forecasts by 2.7 percent.

Europe bourses in 2014:

Asset performance in 2014:

Today's European research round-up: