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Worries about Latam spur selloff in Europe shares
January 24, 2014 / 6:01 PM / 4 years ago

Worries about Latam spur selloff in Europe shares

* FTSEurofirst 300 down 2.4 pct, biggest slide in 7 months

* Euro STOXX 50 breaks below key support

* Argentina in spotlight after peso plummets

* Spanish stocks with big Latam exposure get hammered

* About 19 bln euros wiped off IBEX’s market cap

By Blaise Robinson

PARIS, Jan 24 (Reuters) - European stocks suffered their biggest one-day slide in seven months on Friday and erased what was left of their January rally, as concern about economies and currencies in Latin America sparked a bout of profit taking.

Spanish stocks were among the worst hit, with Madrid’s IBEX index dropping 3.6 percent. That knocked about 19 billion euros off the market capitalisation of the country’s blue chips alone.

The retreat was led by Telefonica, down 4.6 percent, and lenders BBVA, down 5.1 percent, and Banco Santander, down 3.5 percent.

The three Spanish companies derive about half of their revenues from Latin America - the biggest exposure to the region among European blue chips, according to data from MSCI.

French groups Edenred and Casino, which also have massive exposure to Latin America, lost 3.4 percent and 4.4 percent respectively.

“The sell-off has been sparked by mounting worries over emerging markets, with Argentina in the spotlight today,” FXCM analyst Vincent Ganne said. “Investors are getting nervous about a potentially excessive exposure to stocks, and have decided to trim positions, turning to bonds and gold instead.”

Argentina’s government decided on Friday to loosen foreign exchange controls, a day after the country’s peso suffered its steepest daily decline in 12 years.

The Brazilian real was also under pressure, falling to a five-month low, while elsewhere in emerging markets, the Turkish lira plunged to a record low and the South African rand dropped to its lowest in five years.

The FTSEurofirst 300 index of top European shares closed 2.4 percent lower at 1,301.34 points. The benchmark index has now erased all its gains for 2014, leaving it down 1.1 percent on the year.

The euro zone’s blue-chip Euro STOXX 50 index dropped 2.9 percent, breaking below its 50-day moving average, sending a negative technical signal.

Trading volumes were massive on Friday, nearly twice the Euro STOXX 50’s average daily volume of the past three months.

Europe indexes in 2014:

Biggest exposures to Latin America:

Earlier this week, charts sent a series of bearish signals, flagging ‘overbought’ conditions and strong resistance levels, raising the risk of a correction following lofty gains.

“The drop in the IBEX today is essentially an excuse, it doesn’t have much to do with Latin America,” said Margarita Rivas, senior investment strategist at GVC Gaesco Valores, in Madrid.

“Charts were showing exhaustion and the need for a correction. There’s further room on the downside, to around 9,200 points for the IBEX, which would not, however, reverse the positive medium- to long-term trend.”

Despite this week’s sell-off, investor appetite for European stocks has remained strong. Weekly inflows from U.S. investors hit a record high of $1.27 billion in the seven-day period ended Jan. 22, according to Thomson Reuters Lipper data.

Analysts said a pull-back in European stocks was necessary after an almost uninterrupted 22 percent rally since June and should bring buying opportunities, especially in sectors with low valuation ratios such as energy.

European oil and gas stocks trade at a record discount to the broad market price-to-book ratios, even though they offer hefty dividends. That has prompted asset managers such as Societe Generale Private Banking to highlight oil and gas stocks among their top picks for the year.

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