European stocks drop as selloff in US shares fuels risk-off mood

Bloomberg

European stocks extended declines as a sharp selloff in US equities fuelled concerns of an economic slowdown and further dented demand for risk assets.
The Stoxx Europe 600 Index was down 2% as of 10:01 am in London after the S&P 500 posted its biggest drop in almost two years. Personal care stocks were the biggest decliners, followed by financial services. Technology shares also underperformed.
Europe’s equity benchmark attempted to recover over the past week after a four-week slump as investors were lured by cheaper valuations, but the rebound proved short-lived. Earnings reports from major US retailers raised worries about the hit to corporate margins from stubbornly high inflation.
Tech and growth shares have been particularly vulnerable in the latest selloff amid risks to their future earnings from the rising rates.
“I still think we have classic bear market action with volatility in charge and, for equities, the simple conclusion is that corporate margins will be under pressure from here,” said Neil Campling, head of TMT research at Mirabaud Securities.
Strategists broadly expect stocks globally to plumb new lows despite the $11 trillion rout in the MSCI All Country World Index since its late March peak, although they have said fears of an imminent recession are overblown.
“A red wall of worry has built up across financial markets with investors increasingly nervous that economies are set to career into recession,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “Consumers are showing more caution but after the lockdowns, there is clearly pent-up demand for travel. So while goods price inflation may fall, it may be hard to keep a lid on the price of services.”
In Europe, the Stoxx 600 will end December at 476 index points, down 2.5% for the year, according to the average of
15 forecasts in Bloomberg’s monthly survey. While that implies about 8% upside from May 17 close, strategists have lowered their estimates by 5 index points in the past month.
Among individual movers, HomeServe Plc shares jumped as much as 12% after Brookfield Asset Managament Inc. agreed to buy the home emergency and repair services company for £4.1 billion ($5 billion). Nestle SA, on the other hand, slumped the most since March 2020 after Sanford C. Bernstein analysts downgraded the stock, saying the shares will “struggle” if market sentiment improves and investors exit havens.
Tencent leads China tech selloff

Chinese tech stocks slumped as weak corporate earnings coupled with a dimming global growth outlook intensified selling.
The Hang Seng Tech Index closed 4% lower on Thursday, with Alibaba Group Holding Ltd. and Tencent Holdings Ltd. and weighing the most. The latter tumbled 6.5% after the tech behemoth reported its slowest revenue gain since going public in 2004. Xiaomi Corp also falls ahead of its earnings release.
Thursday’s rout tracks a global selloff, sparked by disappointing earnings from US consumer stalwarts that suggested an economic downturn may be on its way. For China tech, top officials’ repeated commitments to support the battered sector have lacked firepower to lift shares. Tencent executives said it will take time for Beijing’s promises to translate into action.
“Tencent’s results suggest growth will be slower for longer, so the read through to the rest of China’s consumer facing technology companies is negative from a fundamental perspective,” said Vey-Sern Ling, a senior analyst with Union Bancaire Privée.
“However, there are reasons to be more optimistic in the second half given the increasing supportive signals from senior levels of the government.”
On the mainland, the CSI 300 Index reversed earlier losses to edge 0.2% higher. Hong Kong’s benchmark Hang Seng Index slid 2.5%.