Europe: China spurs rout in Europe stocks eclipsing worst of Greece saga

[FRANKFURT] Hopes for a quick recovery from the Greek trauma are being dashed in Europe's stock market.

Dragged down by concern China's currency devaluation will hurt exporters, the region's shares suffered their worst single- day decline since October on Wednesday, with benchmark indexes in France, Germany and the Netherlands tumbling more than 3 per cent. More than 7 billion euros (US$7.8 billion) was erased in one stock alone, Unilever, after Goldman Sachs Group Inc. recommended selling it.

"Euro stocks have two strong winds pushing against them: the Chinese consumer is going to be hiding behind the weaker yuan, and stocks are selling in sympathy to the expected lack of exports," said Daniel Weston, chief investment officer of Aimed Capital in Munich, Germany. "The demand expectation from China is having a big rethink."

Wednesday's selloff, led by automakers and consumer companies, was worse than the biggest one-day slides that accompanied Greek's impasse with creditors in June and July. Losses in companies BMW AG and Daimler AG pushed the Stoxx 600 Auto & Parts gauge down 7.9 per cent in two days, the most since 2011.

It was only a month ago that European equities were enjoying their biggest weekly gain in six months, buoyed by optimism that Greece was out of the way and investors were free to concentrate on the region's economy.

Analysts predict a 6.7 per cent advance in Stoxx Europe 600 Index earnings this year overall, led by bank profits, which they see rising 18 per cent. US earnings are expected to increase by only 1 per cent, according to data compiled by Bloomberg.

That thesis, particularly as it applies to exporters, is in dispute again after China's currency move. Daimler and BMW declined at least 3.7 per cent Wednesday. Glencore Plc lost 5.7 per cent as industrial metals fell.

The Stoxx 600 retreated 2.7 per cent to 382.99 at the close of trading, taking its two-day drop to 4.2 per cent, the most since December. France's CAC 40 Index slipped 3.4 per cent, as Valeo SA, Peugeot SA and LVMH Moet Hennessy Louis Vuitton SE fell at least 4.6 per cent. Germany's DAX Index lost 3.3 per cent.

European luxury-goods sellers, carmakers and miners are emerging as the biggest losers after China's move. The volume of Stoxx 600 shares changing hands was 23 per cent greater than the 30-day average.

The surprise devaluation of the yuan sparked the biggest two-day selloff in Asian currencies since 1997. Industrial production, investment and retail data that trailed analysts' estimates put additional downward pressure on China's weakening currency. Traders are now seeking safety in government debt amid reduced inflation expectations.

Among European stocks moving on corporate news, Henkel AG slid 9 per cent - the most since 1999 - after the maker of Schwarzkopf shampoo reported second-quarter earnings that fell short of analyst estimates. Geberit AG lost 6 per cent after the Swiss manufacturer of bathroom piping posted worse-than-forecast sales and said the outlook for the construction industry remains challenging.

Delta Lloyd NV tumbled 8.2 per cent, extending losses after posting a record drop on Tuesday amid concern the Dutch insurer may need to raise funds from shareholders.

ICAP Plc slid 4.2 per cent after Morgan Stanley cut its rating on the largest broker of transactions between banks to underweight - similar to sell - from equal weight.

BLOOMBERG