Shares sink to monthly low as global sell-off continues

Markets resume sell-off of the past 10 days after data shows China’s economy losing momentum


European shares fell to their lowest level in more than a month today, knocked back by data showing China’s economy losing momentum and by growing worries about the impact on companies from emerging market turmoil.

The pan-European FTSEurofirst 300 index, which in January had its first monthly loss since August, was down by 1 per cent at 1,277.77 points in late session trading.

The euro zone’s blue-chip Euro STOXX 50 index also declined by 1.4 per cent to 2,972.64 points, while uncertainty over the near-term outlook drove up the Euro STOXX 50 Volatility Index by 8 per cent to 23.56 points.

Fresh evidence of a slowdown in economic growth in China came after China’s official Purchasing Managers’ Index (PMI) dipped in January.

Emerging markets, which depend heavily on investment from the likes of China and the United States, have been hit by this uncertainty over the outlook for China and a scaling-back in US economic stimulus measures.

The winding-down of the US Federal Reserve’s bond-buying programme has pushed up returns on US Treasuries, causing investors to buy back into Treasures while selling out of emerging markets assets.

“What’s been interesting has been the scale and the rapidity with which the emerging markets have unwound,” said Christopher Mahon, director of asset allocation research at the Global Multi Asset Group at Barings. “Although we don’t think equities will do badly, and will end up higher than they were at the start of the year, we think it will come with more volatility than 2013 had,” added Mahon.

Shares in companies with a significant exposure to emerging markets fell sharply. Cement maker Lafarge fell 3.8 per cent while Spanish bank Banco Santander - which is exposed to Latin America - also weakened 2.8 per cent. The STOXX Europe 600 Banking Index was also knocked by a 6.8 per cent fall at Swiss bank Julius Baer after the company posted lower-than-expected earnings.

In spite of the current emerging market turmoil, many investors with a long-term view over the whole of 2014 remain optimistic for the prospects for European equities this year.

Such investors say European stocks should gradually move up over the course of the year as the region’s economy slowly recovers.

However, those with a more short-term view said now was not the time to go back into the equity market.

Montaigne Capital fund manager Arnaud Scarpaci said the Euro STOXX 50 could soon fall back to the 2,700-2,730 point range while David Thebault, head of quantitative sales trading at Global Equities, also expected more near-term volatility. “It’s not yet time to buy this dip,” said Mr Thebault.