Gains in insurers and mining companies pushed the benchmark gauge for European equities up 20 percent from its September low, marking the start of the region’s second bull market in less than a year.
Lundin Petroleum AB, Barclays Plc and Bank of Ireland Plc led advances in the Stoxx Europe 600 Index even as Greece’s creditors wrangled with policy makers over terms of a debt swap and economists predicted a recession in 2012. While the measure is up 63 percent since global stocks bottomed in March 2009, it has declined 11 percent since February 2011.
Equities are rising after European valuations fell to the lowest level since 2004 compared with the U.S. and analysts predicted profits among companies in the Stoxx 600 will climb an average of 9.5 percent in the next two years. The gauge fell as much as 26 percent in 2011, compared with 19 percent for the Standard & Poor’s 500 Index of U.S. shares, which has remained in a bull market since March 2009.
“Investors have come out of the box, feeling as though it’s time to try to capitalize on what we know to be very good structural values,” Hayes Miller, who helps oversee about $46 billion as the Boston-based head of asset allocation in North America at Baring Asset Management Inc., said in a phone interview yesterday. “For the most part, the worst case scenarios are now embedded in the price.”
The Stoxx 600 trades at 1.44 times book value, or assets minus liabilities, compared with 2.15 for the S&P 500, according to data compiled by Bloomberg. The European gauge had been at least 30 percent cheaper for 69 straight days as of Jan. 23, the longest stretch in seven years. Economists forecast U.S. gross domestic product will expand 2.3 percent in 2012, compared with a 0.2 percent contraction in Europe.
The Stoxx 600 plunged 26 percent from Feb. 17 to Sept. 22 last year, led by a retreat in financial shares, amid concern at least one euro-area nation would default. The previous European bear market, from June 2007 to March 2009, resulted in a 61 percent slide in the Stoxx 600 and included the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.
“Investors were very worried about another Lehman-style event out of Europe,” Martin Schulz, director of international equities at PNC Capital Advisors LLC in Cleveland, said by phone. His firm manages $35 billion and raised holdings of European stocks in the second half of last year. “It’s still in the backdrop of people’s mind, but it’s definitely not as compelling or worrisome as it once was.”
Negotiators representing private creditors returned to Athens yesterday after European finance ministers insisted bondholders take bigger losses on their Greek debt. The International Monetary Fund further roiled the discussions by suggesting that public holders of Greek bonds might also have to increase support.
“You still have the problem of Greece getting closer to a default and we still have to see how much of a cascading effect there will be,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland. “I don’t think you’re buying necessarily real value.”
Lundin Petroleum (LUPE), a Stockholm-based oil explorer, surged 90 percent since Sept. 22 after increasing its estimate of recoverable resources for the North Sea Avaldsnes prospect, part of a discovery that now ranks among Norway’s five biggest offshore finds. Boliden AB (BOL), Scandinavia’s only copper producer, climbed 62 percent.
Barclays, the U.K.’s second-biggest bank by assets, advanced 61 percent and Bank of Ireland rallied 71 percent, leading gains in financial companies. The European Central Bank last month loaned an unprecedented 489 billion euros ($641 billion) for three years to the region’s lenders and the Federal Reserve signaled this week it will keep U.S. interest rates low through late 2014.
The U.K’s FTSE 100 Index rallied 15 percent since Sept. 22, while Germany’s DAX surged 27 percent and France’s CAC 40 advanced 21 percent. Greece’s ASE fell 7.7 percent as talks on a debt swap to avert a default on the nation’s debt failed to reach a conclusion.
“We’ve had a couple of moves from central banks that suggest policy response is strong,” said Bill Dinning, the Edinburgh-based strategy chief at Kames Capital Plc, which manages about $75 billion. “They are providing enough liquidity. What that all adds up to is equities going higher.”
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