European shares hit by weak earnings, emerging market concerns

Thu Jan 30, 2014 7:49am EST

* FTSEurofirst 300 down 0.3 percent

* TeliaSonera, H&M, Diageo drop on earnings news

* HSBC spikes briefly, traders blame 'fat finger'

* 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 as weaker earnings and persistent concerns over emerging markets discouraged investors.

Spirits maker Diageo topped the FTSEurofirst 300 fallers' list with a 5.3 percent drop after reporting slower sales growth for the last six months due to weakening demand in China and some other emerging markets.

Nordic telecom operator TeliaSonera and fashion retailer Hennes & Mauritz, meanwhile, nursed respective losses of 3.7 percent and 3.2 percent after posting fourth-quarter profits below expectations.

The FTSEurofirst 300 was down 0.3 percent at 1,286.23 points by 1216 GMT.

The index briefly erased losses to turn flat earlier, pushed up by heavyweight bank HSBC which spiked as much as 10 percent - a move traders blamed on human error, known in the market as a 'fat finger'. HSBC declined to comment on the move.

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 losing more than 4 percent over six sessions as investors dumped risky assets such as equities.

Pointing to a weak start for China's economy in 2014, the Markit/HSBC final manufacturing purchasing mangers' survey showed Chinese factory activity contracted slightly this month.

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.

"Nobody knows how much further we could go to the downside; I suspect not too much more because I still think this is a pullback in an overall (bullish) trend, and we're still telling clients to use these pullbacks to increase positions," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said.

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.

"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," Peel Hunt equity strategist Ian Williams said.

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: