* FTSEurofirst 300 falls 2 pct, Euro STOXX 50 off 2.7 pct
* Volatility rises most since 2011 as investors buy
* Traders expect Ukraine resolution, uptrend to resume
By Francesco Canepa
LONDON, March 3 Investors took fright at
Russia's military intervention in neighbouring Ukraine on
Monday, setting the pan-European FTSEurofirst 300 index
on course for its second-biggest daily fall since June.
Companies exposed to the region, such as Austria's
Raiffaisen Bank International, were among the top
"Investors had underestimated the risks of an escalation in
Ukraine, so the events over the weekend are a wake-up call for
the market," said David Thebault, head of quantitative sales
trading at Global Equities in Paris.
Banks were among the top fallers, led by Raiffeisen, which
has the largest exposure to Ukraine among European blue chips.
Companies with significant exposure to Russia, such as
carmaker Renault and brewer Carlsberg, fell
5.9 percent and 5.4 percent.
The FTSEurofirst was down 2 percent at 1,320.97 points at
1514 GMT, its steepest fall since Jan. 24, when the index had
also been pummelled by tensions in emerging countries.
The euro zone's blue-chip Euro STOXX 50 index
retreated 2.7 percent to 3,064.34 points.
The cost of insuring against further swings in euro zone
blue chips, as measured by the Euro STOXX volatility index
, rose 27.6 percent, its biggest one-day rise since 2011,
even though it remained at a relatively subdued level of around
21 points, compared to a 2013 peak of nearly 27.
"(Emerging) markets remain a major concern for investors and
will undoubtedly be source of higher volatility for the European
equity markets over the coming months," strategists at Societe
Generale wrote in a note on Monday.
"We recommend protecting your European equity portfolio and
even taking advantage of further volatility through
PRETEXT FOR SETBACK
Russian forces have taken control of Ukraine's Crimea
region, which has an ethnic Russian majority. Ukraine has
stepped up its own military preparations while the United States
has threatened to isolate Russia economically.
"This could be a pretext for a 5 percent setback in the
market," said Francois Savary, chief investment officer at Swiss
bank Reyl. He said if the Euro STOXX 50 fell below the 3,000
level, it could represent a good entry point at which to buy
into the index.
Savary and other investors expected an eventual political
resolution to the Ukraine problems within the coming weeks,
which they said should help equity markets maintain their
upwards trend seen over the last year and a half.
A 50 percent rally since mid-2012 has left the MSCI Europe
index trading at roughly 14 times its earnings, above its
10-year average, Datastream data showed.
Toby Campbell-Gray, head of trading at Tavira Securities,
also expected a political resolution soon to the problems in
Ukraine and said equity markets would continue to be supported
by the fact that they offer better returns than the bond and
"We will see a mark-down for a few days, but people still
want to buy this market - there's nowhere else to put your
money," he said.
All but seven stocks in the FTSEurofirst 300 were in
negative territory, one of the broadest selloff on the index
over the past year.
A calmer macro economic landscape over the past year and
half has allowed investors to focus on the fundamentals of each
company, bringing down stock correlation, a trend that many
analysts expect to continue despite the recent, emerging
"The 'risk-on, risk-off' phenomenon has become much less
dominant since the end of 2012," Peter Rigg, chief executive
officer of HSBC Alternative Investments, said.
"Current P/E multiples are above their 10 year average so
individual company earnings growth is becoming a more relevant
determinant of price moves than multiple expansion."