Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Indexes  >  World (autre bourse)  >  FTSE 100    F100   GB0001383545

FTSE 100 (F100)
Mes dernières consult.
Most popular
SummaryQuotesChartsNewsAnalysisHeatmapComponents 
News SummaryAll newsNews of the components ofTweets

For Winning Bets in Europe, Look to China -- Update

share with twitter share with LinkedIn share with facebook
share via e-mail
0
02/17/2017 | 07:35pm CEST
By Riva Gold 

Europe's economy is gaining strength, but its rallying stock markets may say as much about momentum in China.

Shares of European companies with the tightest links to the Chinese economy have significantly outperformed their peers, helping the MSCI Europe index, a basket of stocks based in 15 European countries, rise more than 20% from its bottom in February 2016.

European stocks most closely correlated to the Chinese economy -- such as mining companies and producers of capital goods like machinery and equipment -- have fared 30% better than the overall market over the past year, according to an analysis by Deutsche Bank. Sectors with the most negative correlation to China -- including telecoms, retail and pharmaceuticals -- have performed the worst.

For decades European markets have followed Wall Street's lead, but China is becoming an increasingly big influence on the direction of local markets.

"It's been the year of the China trade," said Wolf von Rotberg, a strategist at Deutsche Bank.

To be sure, local shares have also benefited from improvements in both the European and U.S. economies.

The eurozone economy kept pace with that of the U.S. for the first time since 2008 last year while its jobless rate fell to a seven-year low.

The economy is expected to grow 1.6% this year, according to the European Commission, and a majority of fund managers surveyed by Bank of America expect European economic growth and inflation to pick up over the next year.

That has helped renew appetite for the region's equities despite concerns over the potential destabilizing effects of upcoming elections in France and the Netherlands.

But large parts of local stock markets are climbing higher on China's back.

European publicly traded companies collectively generate only 5%-6% of their revenue directly from mainland China, according to data provider FactSet. But China exerts a much bigger influence, through its massive impact on the global economic cycle, commodity prices, and broader appetite for risky assets.

That link was made clear in early 2016, when a meltdown in Chinese stocks and concerns about a falling yuan hit European shares hard. The Stoxx Europe 600 fell roughly 17% in the first six weeks of the trading year amid worries that the world's second-largest economy was on the brink of a downturn -- more than twice the declines it posted in the immediate aftermath of Britain's vote to leave the European Union.

But China's economy appeared to stabilize after officials pumped it with cheap credit and state spending, pushing growth to 6.7% in 2016. China's producer-price index hit a five-year high in January 2017 after several slack years, while China's manufacturing sector has posted growth for six straight months. This has supported demand for European machinery and lifted economically sensitive parts of the region's stock market with it, analysts say.

Sectors such as German industrials have done particularly well over the past year as a result of China's stimulus program, said Paul Markham, a director at Newton Investment Management.

"Europe is more of an economic follower," he said, requiring growth from areas such as China and the U.S. to drive its economy and stock markets higher.

Europe's mining sector, the region's best performer over the past year, has also been lifted by sharp gains in metals prices spurred by expectations for Chinese demand. Copper futures are up about 30% from a year ago and iron-ore futures have climbed to multiyear highs.

China accounts for more than half of global demand for most metals, according to S&P Global Ratings.

The U.K.'s FTSE 350 Mining index jumped 145% from its bottom a year ago, compared with a 32% rise in the broader FTSE 100.

Companies with big direct revenue exposure to mainland China have also outperformed. Luxury-goods maker LVMH Moët Hennessy Louis Vuitton, for instance, recently pointed to China as one reason its net profit jumped 14% in the second half of 2016. Its shares are up 31% from a year ago.

But because Europe is following China's lead on the way up, it is also exposed to downside should the country's growth waver.

While few expect a hard landing soon, recent data, including industrial profits and steel production, have suggested China's manufacturing sector may be cooling quicker than expected following last year's record stimulus. Analysts also point to a slowdown of new credit issuance relative to gross domestic product.

That isn't to say Europe isn't highly reliant on domestic and U.S. drivers as well.

Europe's beleaguered banking sector has also been a big driver of the recovery in European bourses, with lenders in the region up around 34% from a year ago, though the gains may have more to do with expectations for higher U.S. interest rates and a stabilization of Italian banks than with China.

But even among European banks, China exerts influence. Shares of Standard Chartered, which derives roughly 43% of revenue from the Asia-Pacific region, nearly doubled in the last year while HSBC shares rose 68%. That compares with a 32% increase for Deutsche Bank shares and 21% for UBS, two banks with significantly smaller Asian revenue exposure.

"It's been a quiet one...but the Chinese effect has had more of an impact [on European stocks] than Trump," said Caroline Vincent, investment director at Cavendish Asset Management, referring to the boost Donald Trump's presidential election gave to many markets.

Write to Riva Gold at [email protected]

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on FTSE 100
06:28p FTSE edges lower on UK consumer worries as banks gain
06:15pDJLONDON MARKETS : Banks Rise, But FTSE 100 Fails To Find A Footing
06:12pDJEUROPE MARKETS : Banks Lead European Stocks Higher After Fed Hints At Rate Hike
10:36aDJLONDON MARKETS : Banks Rise, But FTSE 100 Fails To Find A Higher Footing
08:17aDJALBERT MANIFOLD : CRH PLC CRH agrees $3.5bn acquisition of Ash Grove Cement
07:00aDJEUROPE MARKETS : European Stocks Step Higher, With Bank Gains Providing A Lift
06:14aDJEUROPEAN MORNING BRIEFING : Fed Hints at Another Rate Rise
09/20DJMARKET SNAPSHOT : Dow, S&P 500 Finish At Records As Fed Announces October Start ..
09/20DJMARKET SNAPSHOT : Dow, S&P 500 Finish At Records As Fed Announces October Start ..
09/20DJMARKET SNAPSHOT : Dow, S&P 500 Finish At Records As Fed Announces October Start ..
More news
News of the components of FTSE 100
09:35p Oil-patch IOU - Argentina's late subsidy payments hurt gas producers
09:17p BARCLAYS : UK banks to check 70m bank accounts in search for illegal immigrants
09:01p ACG extension to contribute to future development of Azerbaijan-Japan relatio..
08:30p ROYAL DUTCH SHELL : Further Director\PDMR Share Holding
07:33p SMITH & NEPHEW : Hip hip hooray for KH patients
07:27p ASTRAZENECA : Biogen Appoints Sanjay Jariwala as SVP, Worldwide Medical
07:24pDJSANDELL ASSET MANAGEMENT EUROPE LIMI : Form 8.3 - Tesco Plc
More news
Chart FTSE 100
Duration : Period :
FTSE 100 Technical Analysis Chart | F100 | GB0001383545 | 4-Traders
Technical analysis trends FTSE 100
Short TermMid-TermLong Term
TrendsBearishNeutralBullish
Top / Flop FTSE 100
JOHNSON MATTHEY PLC 3390 Delayed Quote.14.60%
ITV 166.9 Delayed Quote.2.90%
ANGLO AMERICAN 1331.5 Delayed Quote.2.90%
LLOYDS BANKING GROUP 67.45 Delayed Quote.2.65%
BARCLAYS 190.4 Delayed Quote.2.42%
ANTOFAGASTA 922 Delayed Quote.-2.28%
EASYJET 1198 Delayed Quote.-2.60%
J SAINSBURY 234.3 Delayed Quote.-4.05%
KINGFISHER 300.2 Delayed Quote.-4.09%
CAPITA 569.5 Delayed Quote.-11.57%
Heatmap :