* FTSEurofirst 300 index rises 0.4 percent
* Euro STOXX 50 to rise more before facing resistance
* Swisscanto fund manager says positive on financials
By Atul Prakash
LONDON, Nov 22 European shares hit a two-week
high on Thursday as Chinese economic data gave a further sign of
recovery in the world's second-biggest economy, encouraging
investors to put more money into stocks.
The China HSBC Flash Manufacturing Purchasing Managers
Index, which largely reflects the private manufacturing sector,
hit a 13-month high of 50.4 in November. It followed figures on
Wednesday showing U.S. manufacturing picked up at its quickest
pace in five months in November.
"There are questions over whether the Chinese economy is
really that bad or if the U.S. will take a long time to recover,
but we are getting signs that the situation is not as bad as
assumed," Peter Braendle, head of European equities at
Zurich-based Swisscanto Asset Management, said.
"I am betting on a positive economic environment. I suspect
that many investors are still 'underweight' European equities
and they have to catch up a little bit," said Braendle, whose
fund company manages nearly $60 billion.
Braendle said he raised his exposure to KBC last
week and was keeping an eye on financials like Barclays
and BNP Paribas, adding: "For me, it's a question of
valuation, which is far too low and has potential to catch up."
Barclays was on a price-to-book ratio of 0.5, while BNP
traded at 0.7, against 1.5 for the broader STOXX 600
index, according to Thomson Reuters data. Braendle said Barclays
and BNP traded on a ratio of about 1.0 some years ago.
Sectors more sensitive to economic growth were among the top
gainers, with miners rising 1.1 percent, technology
gaining 0.8 percent and the travel and leisure sector
climbing 0.7 percent.
At 1148 GMT, the FTSEurofirst 300 index was up 0.4
percent at 1,101.68 points after rising to 1,103.20, the highest
since November 8. It has so far gained more than 3 percent this
week, the best weekly performance since early February.
A positive outlook was also reflected in a note from Bank of
America-Merrill Lynch, which said investors should position for
a 'great rotation' out of bonds and into equities next year,
fuelled by high liquidity and hopes for future global growth.
They recommended to buy U.S., UK and continental European
equities this year, although warned a rally into the end of the
year would depend on good purchasing manager indexes (PMI) data
and a positive outcome to budget talks in the United States.
The bank recommends hedging long positions with shorts on
the European insurance sector, which has rallied 35
percent since June, and options to sell the S&P 500.
The euro zone's blue chip Euro STOXX 50 index
rose 0.5 percent to 2,531.24 points, with charts showing that
the index had potential to advance further in the coming days.
Roelof-Jan van den Akker, senior technical analyst at ING
Commercial Banking, said the index was still in a sideways
environment and was likely to face resistance at around 2,555 -
a falling trendline that started from its September highs.
"We could see somewhat higher prices in the next few days,
but looking at a longer-term weekly chart, it faces horizontal
resistance at 2,610. As long as this level is not broken, we
should expect a continuation of the sideways price action
between 2,400 and 2,600."
Analysts said investors were likely to stay cautious in the
coming weeks following worries related to the U.S. fiscal
negotiations, but they should look for a balanced approach by
buying some cyclicals.
Robert Parkes, equity strategist at HSBC Securities, said
there were risks in having a purely defensive portfolio at this
point in time, but noted that some investors were still trying
to avoid risk, which was reflected in equity valuations.
According to Thomson Reuters Datastream, the broad STOXX 600
trades at 11 times its 12-month forward earnings, still
well below a 10-year average of 12.3, against a
price-to-earnings ratio of 12.1 for Wall Street's S&P 500
Some positive corporate news also helped in improving
sentiment. SABMiller, the world's second-biggest brewer,
rose 6.7 percent after posting a 12 percent rise in first-half
Turnover was thin as U.S. markets were shut for
Thanksgiving. Trading volume on the FTSEurofirst 300 was just 25
percent of its 90-day daily average by midday.