Late European share rally masks bearish outlook
LONDON, May 12 — European shares staged a late rally yesterday following positive US economic data, although traders and investors said the gains could be short-lived due to ongoing concerns over Spanish banks and political uncertainty in Greece.
The FTSEurofirst closed up 0.3 per cent at 1,022.52 points, having spent much of the day in negative territory. At one point, the index had fallen as much as 1.2 per cent to an intraday low of 1,006.89 points.
Data showing that American consumer sentiment had risen to its highest level in more than 4 years in early May pushed up European markets, but several traders and investors said the rally would turn out to be a false down.
"I wouldn't jump into the market right now," said Francois Savary, chief investment officer at Swiss private bank Reyl, which manages more than 5 billion Swiss francs (RM16.5 billion) of assets.
The FTSEurofirst index is down 0.5 per cent from the start of the week, having made little headway, and the pan-European STOXX 600 index remains on a downward trend from a peak of around 260 points reached at the start of May.
Savary said investors should wait for the STOXX 600 index to fall back to the 240-245 point range before buying the index.
Greek stock market down to 1992 erm-crisis levels
The Spanish IBEX stock market closed down 0.7 per cent, with investors unconvinced by the government's moves to plug a gaping hole in its banking system.
Concerns over Spain's debt-ridden banks caused the European banking index to fall by 0.8 per cent, with the sector also hit by a US$2 billion trading loss at Wall Street firm JP Morgan.
In Greece, political parties made a last-ditch attempt to avert a new election, as the country battles to remain within the euro zone.
The Athens benchmark index fell 4.5 per cent to its lowest level since late 1992, when a crisis in the European Exchange Rate Mechanism, known as ERM - a precursor to the creation of the euro currency - hit world markets.
"The Greek stock market is hitting lows because of the political deadlock, with buyers holding back. As long as political uncertainty persists the market will not have a reason to rebound," said Theodore Krintas, head of wealth management at Attica Bank.
The best-performing European stock market remained Germany, whose export-led economy has proven resilient in the face of the euro zone crisis, with the DAX ending up nearly 1 per cent at 6,579.93 points.
ClairInvest fund manager Ion-Marc Valahu said European stock markets could get some support going forward with the DAX at above the 6,500 point level.
However, Cavendish Asset Management's European equities fund manager Caroline Vincent remained unconvinced that European stock markets would rally much further in the near future.
"The risk-on strategy is clearly off the table for now. I'm not rushing to sell but I'm holding off and waiting to see how Greece and Spain pan out," she said. — Reuters