Europe Stocks Enter Correction; SocGen Says Half-Way Into Slump
(Bloomberg) -- A sell-off in European equities intensified, pushing the regional benchmark into a technical correction, as more companies warned that the coronavirus would hit profits, while cases of the epidemic outside China increased.
The Stoxx Europe 600 Index dropped 3.8%, extending its slump from the record high on Feb. 19 to 10%. Anheuser-Busch InBev NV and Standard Chartered Plc were the latest companies to sound the alarm about the outbreak’s impact on earnings.
Equities are plunging this week on fears about the outbreak’s impact on global growth and corporate earnings. The U.S. reported its first instance of coronavirus that doesn’t have ties to a known outbreak, while the World Health Organization noted there were more cases reported in countries other than China for the first time.
Societe Generale SA strategists including Alain Bokobza and Frank Benzimra wrote in a note on Thursday that European equity markets remain vulnerable and are only halfway through the pull-back, with autos, oil, mining, luxury goods as well as travel and leisure among the most affected sectors.
European equities have now wiped out all the sharp gains made since late October. The Stoxx 600, which now trades below its 200-day moving average, is on track for its worst week since the heat of the euro-area sovereign debt crisis in August 2011.
“Given the recent volatility, fear is the dominant factor,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM EK. “In a very short period, we went from all-time high celebrations to panic mode. It’s too early to ‘buy the dip’ in my view and I expect investors to stay on the sidelines or increase cash.”
Travel stocks tumbled yet again on Thursday, leading declines. The sector has plunged the most among industry groups since Feb. 19. AB InBev slid 11% to the lowest since 2012 after the world’s largest brewer forecast the steepest decline in quarterly profit in at least a decade due to the coronavirus. Standard Chartered slipped 3.6% after saying it will miss a key profitability target amid the outbreak.
“Investors should minimize their exposure to industrial commodities, luxury goods and European airlines,” said Seema Shah, chief strategist at Principal Global Investors. “We also favor quality stocks, especially large companies. “Defensive sectors such as utilities, real estate and health care are likely to do well in the equity markets compared to the broader markets.”
Other corporate news also added to market pessimism. WPP Plc tumbled 16% after forecasting a fourth year with no sales growth. Aston Martin Lagonda Global Holdings Plc fell 9% after saying sales will slump in the first half of the year, before an expected boost from the new DBX SUV in the second half.
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