European stocks rise to record as earnings and China boost mood

[MADRID]

European equities closed at a record as August kicked off with positive earnings updates and easing concern about China's regulatory crackdown.

The Stoxx Europe 600 Index was up 0.6 per cent at the close. AXA SA rallied as first-half profit more than doubled, while Meggitt Plc surged 57 per cent after agreeing to a takeover by Parker-Hannifin Corp.

Stocks are rising to fresh highs after six straight months of gains as strong earnings help reassure investors who are keeping a close eye on inflationary pressures and rising cases of the Delta virus variant. Strategists expect more market volatility in the coming months, just as equities head into a period that tends to be historically the weakest.

Alfonso Benito, chief investment officer at Spanish asset manager Dunas Capital, said: "Earnings have been very positive in general. We now enter a very quiet period, with low volumes and central banks on holidays, so any news could have a big impact as we have seen in previous Augusts, when volatility has picked up."

Among other movers, Allianz SE declined as it warned earnings could be materially hurt by a US probe.

Europe is seeing the best earnings revisions of all global regions, according to Morgan Stanley strategists, although second-quarter results so far have delivered a narrower breadth of EPS beats than the first quarter.

Overall, a more dovish tone from the European central bank than from the US Federal Reserve, combined with more attractive valuation levels in Europe, could lead to further investment flows into the region from the US and international asset managers, said Gérard Piasko, chief investment officer at Maerki Baumann.

"On the one hand, stock markets are supported by the good economic situation; on the other hand, valuations are now historically above average," he said. "The latter is more true of US than European stocks, however. We remain overweight European stocks versus the US."

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