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Europe: Italian stocks, banks weigh on shares; Adidas shines

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[LONDON] European shares dipped on Wednesday as strong results from Adidas and robust mining stocks were more than offset by weak banks and a drop in Italian stocks over fresh political jitters.

Italy's FTSE MIB index fell 1.1 per cent, turning lower after right-wing leader and aspiring prime minister Matteo Salvini reiterated his party's view that the euro was a flawed currency. He also said he was open to forming any sort of coalition government as long as it did not include the Democratic Party.

His remarks, which brought back the focus on Italy's inconclusive election outcome, hit Italian government bonds and sent the country's banking stocks, which are seen as a proxy for political risk given their big sovereign bond holdings, down 1.4 per cent. Europe's banking index fell 1 per cent.

The pan-European Stoxx 600 however managed to limit losses to 0.2 per cent, also weighed by a early losses on Wall Street, while Germany's DAX added 0.1 per cent, lifted by a double-digit gain in German sports fashion company adidas.

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Adidas jumped 11.2 per cent after announcing a share buyback of up to 3 billion euros and lifting its 2020 profitability target.

Berenberg analysts said strong sales growth surprised the market after "a lot of chatter" about the stock.

"Despite the wide-ranging concerns, Adidas has delivered a good set of results," said Berenberg's Zuzanna Pusz, adding that the share buyback programme showed Adidas' focus on shareholder returns.

Technology stocks weighed on the Stoxx after sources said US President Donald Trump was threatening to impose tariffs on up to US$60 billion of Chinese imports, targeting tech and telecommunications in particular.

"We have got some protection in portfolios, which is a nod to the fact we think sentiment is totally overrun and valuations are very high," said Rory McPherson, head of investment strategy at Psigma Investment Management.

"Clearly the potential trade war would cause us to ramp up that protection, but at the moment we think it's a tail event."

Basic resource stocks climbed 0.9 per cent after data showed Chinese industrial production expanded at a much faster pace than expected.

Zara owner Inditex rose 3.8 per cent, reversing earlier losses as investors cheered strong online sales growth and Chief Executive Pablo Isla said margins should hold up this year.

The stock initially fell after the company released results and proposed a lower than expected dividend German chemicals firm Symrise tumbled 5.2 per cent after 2017 results disappointed the market with slow margin growth.

Peer Brenntag also dropped after results.

UK insurer Prudential was a notable gainer, up 5 per cent as investors cheered its plan to spin off its British and European business.

Top faller was Belgian postal service Bpost which dropped 22 per cent after delivering a weak profit guidance for 2018.

German online advertising firm Axel Springer tumbled 7.3 per cent after Berenberg analysts cut their rating on the stock to "sell", saying the company was not delivering as much as digital peers.

Psigma's McPherson has a neutral position on European equities and slightly underweight on Britain, while his biggest underweight is US stocks. "None of them are screamingly cheap," he said, adding US stock valuations are much higher.

Analysts expect earnings to grow around 20 per cent this year in the United States, while expectations for European earnings growth are around half that, Thomson Reuters I/B/E/S data shows.

"To deliver on those earnings is much more achievable," said McPherson.

REUTERS

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