Europe: Profit taking saps shares in November after "memorable" gains

[MILAN] European shares fell back on Thursday and marked their biggest monthly fall since June as profit taking kicked in after stellar gains this year.

Financial stocks weighed on the last day of November, although Credit Suisse rose after promising improved returns and Italian banks were supported by hopes of delays in bad loan rules.

The pan-European Stoxx 600 fell 0.3 per cent on the day, and was down 2.2 per cent for November, while euro zone blue chips fell 0.6 per cent on the day and 2.8 per cent this month.

Investors have been taking profits out of European shares this month as earnings growth in the region slowed and political worries resurfaced amid Germany's difficulties to form a working coalition government.

Still, Ifigest fund manager Carlo Franchini said in spite of this month's wobble he expected markets to hold on to their gains going into year end, citing the recent strength in economic data and prospects of tax reform in the U.S.

"It's all very supportive for stock markets. Unless there is an external shock it's hard to think they could fall back," he said. "No one is going to ruin such a memorable year."

The Stoxx 600 is up 7 per cent so far in 2017, while the German DAX index has gained 13 per cent and is close to its record highs and Italy's FTSE MIB is up 16 per cent. The UK's FTSE has lagged behind, up 2.7 per cent.

On Thursday financials were the biggest drag on the Stoxx 600. Shares in the world's No.1 reinsurer Munich Re fell 2.7 per cent with traders citing underwhelming remarks on its outlook from its CEO, who said he did not expect "big jumps back to previous earnings levels".

Banks also reversed earlier gains, ending down 0.7 per cent, as bond yields fell following weaker-than-expected euro zone inflation data that suggested the European Central Bank will remove its massive stimulus only gradually.

Credit Suisse however rose 2 per cent after it raised its payout ratio targets, while Italian banks added 0.2 per cent on relief on news the ECB will need a few more months to complete its contested new rules on non-performing loans (NPLs).

Italian banks are seen as particularly exposed to stricter rules on NPLs because they hold nearly 30 per cent of the euro zone's 915 billion euros of bad loans.

Energy stocks rose as much as 0.7 per cent after Opec and non-Opec crude producers agreed to extend oil output cuts until the end of 2018. The sector however pared gains to end down 0.2 per cent as investors said the decision had already been priced in.

Tech stocks were another weak spot. Dialog Semiconductor fell as much as 23 per cent after Nikkei reported that key client Apple would design power chips in-house as early as 2018.

Chipmakers globally have wobbled this week after a Morgan Stanley note said the super-cycle for memory chips could be nearing a peak, and as the leaders of a dizzying tech rally that some say is reaching bubble territory.

"I'm not sure one would say it's a bubble. By and large the companies are generating either good profits or the potential for good profit growth," said Andrew Milligan, head of investment strategy at Standard Life.

REUTERS