Europe: Defensives in the driving seat as shares shake off tech tremors

[LONDON] Defensive stocks won the day in European markets on Wednesday, driving regional benchmarks higher despite heavy losses in the technology sector amid concern over a regulatory crackdown.

The pan-regional Stoxx 600 index ended the day up 0.5 per cent, with consumer staples and healthcare stocks - labeled "defensive" due to their large dividends - driving the market.

Germany's DAX, which is heavier in industrials and autos stocks, was a laggard, down 0.3 per cent.

As tech stocks dropped, hit by concerns over a regulatory crackdown after allegation against Facebook of privacy breaches, investors reached for the defensive sectors typically favoured in times of market stress.

A fall in bond yields also helped defensive sectors outperform.

Europe's utilities index jumped 3.2 per cent, its best daily gain in 21 months.

Healthcare stocks gained 1.6 per cent, led by Shire , which soared 14 per cent on news Japan's largest drugmaker, Takeda Pharmaceutical, was considering a bid for the UK company.

Consumer goods giants Nestle, Unilever and British American Tobacco were among the strongest single-stock boosts to the STOXX.

Tremors in tech stocks began in the US and spread to global markets. Europe's tech sector fell 1.8 per cent, hitting a near seven-week low, as the Nasdaq dropped with Amazon and Apple shares falling sharply.

Amazon fell 5 per cent after reports President Donald Trump was looking to target the company by changing its tax treatment.

Tech has been a key driver behind a global equity rally, and investors are concerned that an increase in regulation will spark a further sell-off.

"A recent stream of negative news has acted as a trigger for the sell-off in the US tech sector. But the underlying cause ... is extremely stretched valuation metrics that have generated a sizeable misalignment with fundamentals, mostly for the big technology stocks," said UniCredit in a note.

On a price-to-earnings basis, European and US technology stocks are valued around their highest level in more than a decade. European tech stocks have fallen 9.5 per cent from their peak a the end of 2017, but they remain among the best performers over the past year, up 2.5 per cent.

Top fallers among European tech stocks were chipmakers ams, ASML, STMicro and Infineon.

Ams fell 10.2 per cent, STMicro tumbled 5.9 per cent and Infineon dropped 4.8 per cent.

"As concerns semiconductors, the fear comes from the environment of bad news that is accumulating around the functioning and testing of autonomous vehicles," IG analyst Alexandre Baradez said.

Chipmaker Nvidia Corp suspended self-driving car tests, a week after an Uber autonomous vehicle struck and killed a woman in Arizona.

Miners also suffered heavy losses as metal prices fell, weighed by a rising dollar.

REUTERS