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European shares fall as China slowdown fears hit autos
March 20, 2012 / 12:31 PM / 5 years ago

European shares fall as China slowdown fears hit autos

* FTSEurofirst 300 index falls 1.1 percent

* Autos, China down on China concerns

* Telcos best performers, seen as safe haven

By Joanne Frearson

LONDON, March 20 (Reuters) - European shares fell for a second day on Tuesday, with autos and miners hit by worries of a China slowdown, although a positive signal from U.S. Housing starts data could tempt buyers back into the market.

The U.S. Housing Starts/Building Permits figure is due out at 1230 GMT, and if this has further evidence that the United States is recovering, investors could see this as a buying opportunity in European companies that have U.S. exposure.

The auto sector was hit after the Russia’s Deputy Industry and Trade Minister indicated Russian car sales would only rise 6 percent compared to a 23 percent gain in January-February.

Daimler and BMW were the standout losers in the sector, down 5.1 percent and 4.7 percent respectively as traders also cited media report that Chinese car sales would miss growth forecasts.

“China is one of the world’s growth engines, there has been a reliance on companies to tap into their growth markets,” said Richard Batty, strategist at Standard Life Investments, which has $248.37 billion of assets under management.

“Stocks are being driven down on reports of major discounts amongst the luxury good car brands in China and comments about weak iron ore demand. But U.S. Housing Starts will be important later as their needs to a housing recovery in order for the economy to continue improving.”

Miners also were also under pressure after BHP Billiton raised concerns about a slowdown in China when it said it was seeing evidence of “flattening” iron ore demand.

BHP Billiton and rival iron ore producer Rio Tinto were among the worst performers on the FTSE 100 index, down 3.2 percent and 4 percent respectively, on concerns profits could be hit if demand slows.

The Euro STOXX 50 volatility index, a key gauge of Europe’s investor ‘fear’, jumped 8.9 percent after three-days of falls. The higher the volatility index, the lower investor appetite for risk.

By 1206 GMT, the pan-European FTSEurofirst 300 index of top shares was down 1.1 percent at 1,093.29 points after hitting an eight month high last week.

“The index could find support near the highs of last month at about 1990,” Phil Roberts, chief European technical strategist at Barclays Capital said.

“If it loses momentum here it could dip to about 1,080 which represents a level near its 21-day moving average.”

The FTSEurofirst 300 index has gained 9.8 percent this year following the European Central Bank LTRO program, which offered banks cheap money and helped put liquidity back into the financial system.

“It is struggling to hold onto the recent gains. Our clients are now looking to go short and sell into the rally,” said Joe Rundle, head of trading at ETX Capital.

“If there is some improvement in the U.S. housing starts it may give a little push upwards.”

A meeting between the Italy Prime Minister and trade unions was also making investors nervous about whether the country would be able to implement the reforms needed to help turn around its economy.

TELCOS GAIN

Investors favoured the telecom sector instead, with the STOXX Europe 600 Telecommunications index the best performing sector up 0.7 percent due to its defensive characteristic’s and high dividend appeal.

Vodafone, which offers a dividend yield of 5.4 percent rose 1.7 percent making it the top performer on the FTSE 100.

Espirito Santo Investment Bank has a “buy” rating on Vodafone said it saw 26.1 percent upside potential. Fund manager Ashburton had the stock in its European portfolio due to its attractive dividend yield and good cash flow.

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