European equities failed to sustain optimism from the US rally as the region’s markets reopened after the Christmas holiday amid elevated volatility and thin volumes.
The Stoxx Europe 600 Index fell 0.9 per cent, after opening 0.5 per cent higher. The Euro Stoxx 50 Index was also down, poised for a bear market. Trade-sensitive sectors, such as miners and automakers, paced the retreat.
European equities are set for their worst year since the 2008 financial crisis as a mix of political and economic concerns have fuelled outflows of about $70 billion (Dh257 billion) from the region’s stock funds. Although the S&P 500 Index soared the most since 2009 on Wednesday on signs of robust consumer spending, fewer concerns about the tenure of the Federal Reserve chief and progress on US-China trade talks, US futures traded lower Thursday and the VIX Index advanced.
“It’s a combination of nervousness, growth fears and in particular Brexit uncertainty. Liquidity is very thin, and political risks are more severe for Europe,” Ulrich Urbahn, head of multi-asset strategy and research at Berenberg said. “The hope is that with some re-balancing flows at the end of the year and new risk budgets at the beginning of next year, markets will find a bottom.”
The worst-performing sector this year in Europe is banks, with a loss of 29 per cent, due to company-specific developments such as a regulatory raid on Deutsche Bank AG as well as investor disappointment over the prolonged decision of the European Central Bank to keep rates on hold.
Automakers are the second-worst performers with a drop of 28 per cent due to the uncertainty over US tariffs on a broad range of imported vehicles and the US-China trade war.