European stocks dropped after a four-week rally left the Dow Jones Stoxx 600 Index valued at the most expensive level relative to earnings in almost six years.
Daimler AG (DAI), the world’s second-biggest maker of luxury cars, and Volkswagen AG (VOW) sank at least 3.7 percent as analysts recommended selling the shares. Lloyds Banking Group Plc (LLOY) decreased 4 percent after the Times newspaper said the U.K. lender may seek to raise as much as 15 billion pounds ($25 billion) in a share sale.
The Stoxx 600 declined 0.5 percent to 229.56. The regional gauge has soared 45 percent since March 9 as companies worldwide from GlaxoSmithKline Plc (GSK) to Goldman Sachs Group Inc. (GS) reported better-than-estimated earnings. The measure is valued at 40.1 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.
“I don’t think any economic recovery yet is written in stone,” said Robert Prugue, head of Lazard Asset Management in Sydney, which oversees about $98 billion in assets. “Being a little bit too optimistic without being truly pragmatic about the conditions yet to uncover is perhaps bordering from irrational exuberance to irresponsible exuberance,” he told Bloomberg Television.
Outlook for Stocks
Mark Mobius said global stocks will drop as much as 30 percent after advancing from multiyear lows and as companies increase share sales. The so-called correction “can happen anytime, probably this year,” Mobius, the executive chairman of Templeton Asset Management Ltd., said in an interview in Kuala Lumpur today. He said he was referring to shares “globally.”
Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities. Traders are betting the VIX, a gauge of expected stock swings, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg.
Still, the U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, according to Laura Tyson, an adviser to President Barack Obama.
“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize-winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.
Daimler declined 3.7 percent to 32.34 euros. Morgan Stanley downgraded the shares to “underweight” from “overweight,” citing “risks” to 2010 estimates for growth and a “stretched valuation.”
Volkswagen retreated 7.5 percent to 233.04 euros after Europe’s largest carmaker was cut to “underweight” from “neutral” at HSBC Holdings Plc, which said “selling pressure could arise.”
A measure of automotive companies in the Stoxx 600 slid 2.9 percent, the biggest decline among 19 industry groups.
Lloyds dropped 4 percent to 97.89 pence. The company’s new chairman, Win Bischoff, is seeking to raise 10 billion pounds to 15 billion pounds in a share sale as part of a plan to reduce the bank’s exposure to the U.K.’s asset protection plan, the London-based Times reported, without saying where it got the information.
“We’re working with the Treasury to complete the detailed terms of our intended participation in the asset protection scheme,” Lloyds spokeswoman Eleanor Ross said. “We expect to conclude those discussions and agree terms that are in the best interests of our shareholders.”
Bourbon SA (GBB) added 3.9 percent to 30.96 euros. The owner of the world’s biggest fleet of supply ships for deep-water oil exploration said second-quarter sales increased 9.7 percent to 243.5 million euros ($345.5 million).
Friends Provident Group Plc rallied 7 percent to 75 pence after saying it entered discussions with Resolution Ltd. as it received a revised offer that values the company at 1.86 billion pounds.
U.K. companies are having an easier time getting access to loans in a sign the credit crunch is abating, the Confederation of British Industry said. A net 18 percent in a survey of 73 firms said credit availability improved in the past three months, compared with a net 20 percent reporting a deterioration in May, Britain’s biggest business lobby said today in London.
House prices in the U.K. will start rising again in 2010 as the size of the slump so far makes further declines unlikely, the Centre for Economics and Business Research said.
KBC Group NV (KBC), the recipient of 7 billion euros in Belgian bank-rescue funds, soared 13 percent to 24.34 euros as ING Groep NV raised its recommendation to “buy” from “hold.”
“There has been positive newsflow expected related to the capital release,” ING analyst Albert Ploegh wrote in a note to clients. “This should underpin the market’s confidence that KBC is able to redeem the government capital in a reasonable time frame with less dilution than feared.”
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