Shares pause on earnings concerns

Subdued demand from China hits profits at Remy Cointreau and Hugo Boss

European shares this morning lacked the momentum to extend a rally to multi-year highs. Photo: Bloomberg

European shares this morning lacked the momentum to extend a rally to multi-year highs. Photo: Bloomberg

Tue, Nov 26, 2013, 09:14

European shares this morning lacked the momentum to extend a rally to multi-year highs, following downbeat signals from Remy Cointreau and Hugo Boss.

Shares in Remy dropped 7.5 per cent after the French spirits group warned of a double-digit decline in full-year operating profit because of a slowdown in China.

Subdued demand from China also hit performance at the German fashion house Hugo Boss, with shares falling 3.5 per cent after it delayed its 2015 profit target.

Investors had been expecting earnings to pick up this year as the European and global ecomomy improves, but so far this has not happened and momentum - analyst upgrades minus downgrades - remains mired in negative territory.

“European equities are beginning to be a little bit stretched based on the fact that earnings expectations have not completely reversed ... You are seeing the forward (price-to-earnings) multiple rising, but the forward expectations for earnings are actually flat and that’s not normally a very healthy sign,” said Peter Garnry, strategist at Saxo Bank.

“I think it will change as we move into the new year and everyone begins to revise up their targets for the euro area economy.”

The FTSEurofirst 300 was down 0.1 per cent at 1,301.33 points , pausing below a 5-year high of 1,316.42 set earlier this month.

Monday marked the fourth quietest day so far in 2013 on the FTSEurofirst 300, with volumes a third below the year-to-date average, and traders braced for a similar pattern today.

Reuters