A trader works at the Frankfurt Stock Exchange in Frankfurt, Germany. (Photographer: Hannelore Foerster/Bloomberg News)

It’s Almost Official: Europe Stocks to Post Worst Year in Decade

(Bloomberg) -- There’s more than a week to go until the new year, but at this point, it’s almost official: European stocks will post their worst annual performance since 2008.

The Stoxx Europe 600 dropped 0.3 percent as of 3 p.m. in London, taking this year’s loss to 14 percent. Meanwhile, the blue-chip Euro Stoxx 50 is less than 2 percent away from entering a bear market after hitting the threshold earlier in the session.

It’s Almost Official: Europe Stocks to Post Worst Year in Decade

It’s a testimony to how fragile sentiment is that even news of Chinese stimulus couldn’t lift the gloom. Tensions between America and China are simmering again after China demanded that the U.S. withdraw espionage charges against Beijing officials. A government shutdown also looms in the U.S.

The Stoxx 600 at least pared declines from the late morning, with some cyclical sectors rising, as U.S. shares opened slightly in the green. Expectations for tax cuts and easier monetary policy in China gave resources stocks an extra boost, making them Friday’s best performer in Europe.

It’s Almost Official: Europe Stocks to Post Worst Year in Decade

Looking back at 2018, it wasn’t just U.S. stocks that spoiled the fun. Almost existential questions plaguing European politics didn’t help, and many of these will carry through to 2019. With U.K. Prime Minister Theresa May still struggling to sell her Brexit deal to Parliament, behind closed doors her inner circle is reportedly mulling other options, such as a second referendum. Meanwhile, a plunge in Italian manufacturing and consumer confidence shows that while the country has reached a deal with Europe over its budget, its economic challenges still loom large.

The year has seen an exodus from European stocks, and this shows no signs of relenting. The week through Dec. 19 saw the fourth-biggest weekly outflows ever at $5.4 billion, according to a Bank of America Merrill Lynch note that cited EPFR Global data.

The one consolation is perhaps that at least the region’s equities haven’t slid as much as their U.S. counterparts this month. But a casual look at the two indexes’ historical performance will tell you there’s little chance European shares can fare well when American stocks are struggling. And while European stocks are cheap, they’re not the only bargains around. Investors looking to diversify from America may prefer emerging markets, especially with Chinese stimulus on the horizon.

It’s Almost Official: Europe Stocks to Post Worst Year in Decade

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