European Stocks Post Weekly Drop as Emerging Markets Sink

Frankfurt Stock Exchange
A trader monitors financial data on his computer screens at the Frankfurt Stock Exchange. Photographer: Ralph Orlowski/Bloomberg

European stocks posted their biggest weekly decline in seven months as emerging-market currencies suffered a selloff and a report showed China’s manufacturing industry unexpectedly contracted.

Banco Bilbao Vizcaya Argentaria SA slid 8.9 percent and Banco Santander SA dropped 5.6 percent as companies that generate earnings from emerging markets retreated. Royal DSM NV slumped 14 percent after the vitamin maker said that foreign-exchange rates will force it to take a prudent approach to its business in 2014. Celesio AG rallied 8.7 percent as McKesson Corp. agreed to acquire the German drug wholesaler.

The Stoxx Europe 600 Index fell 3.3 percent to 324.75 this week, its biggest decline since June. Stocks retreated around the world as evidence of weakness in China’s economy added to concern that smaller monthly asset purchases by the Federal Reserve will destabilize emerging markets.

“The Chinese purchasing managers’ index was a bit weaker, Turkey and Argentina have had their domestic concerns, and people have taken the opportunity to take a bit of money,” said Steven Bell, a London-based fund manager at F&C Asset Management Plc, which oversees the equivalent of $150 billion. “It has all become a bit messy. China has been going through some teenage growing pains in its economy. Adjusting to a lower pace of growth is something that is not easy to do.”

A report on Jan. 23 showed that manufacturing activity in the world’s second-biggest economy probably shrank for the first time in six months. The PMI from HSBC Holdings Plc and Markit Economics dropped to 49.6, below the 50 level that separates expansion from contraction. The median economist estimate compiled by Bloomberg had called for a reading of 50.3.

Argentina, Turkey

A Bloomberg customized index that tracks 20 emerging-market currencies fell for a tenth consecutive day. Argentina’s peso plunged 16 percent as the government allowed the currency to devalue by reducing support in the foreign-exchange market. Turkey’s lira weakened 4 percent, falling to a record low. The country’s central bank sold between $3.5 billion and $4 billion on Jan. 23 to shore up the lira, according to Istanbul-based brokerage Strateji Menkul Degerler. The first unscheduled intervention in more than two years still failed to stem the currency’s decline.

The Fed announced last month that it would slow its $85 billion-a-month bond-buying program by $10 billion in January, potentially reducing capital flows into emerging economies.

The national benchmark indexes in every west-European market, except Iceland, fell this week. The U.K.’s FTSE 100 lost 2.4 percent, its biggest drop in seven months. Germany’s DAX slid 3.6 percent, while France’s CAC 40 slipped 3.8 percent.

BBVA, Santander

BBVA, which owns a bank in Argentina, fell 8.9 percent, its biggest weekly drop since July 2012. Spanish lenders have relied on emerging markets to shield their earnings against an economic slump at home. Santander, which earns about a quarter of its profit from Brazil, fell 5.6 percent.

Mapfre SA, a Spanish insurer that operates in Turkey and across Latin America, dropped 10 percent.

Royal DSM slumped 14 percent. The world’s largest vitamin maker said that a sluggish economy, weak demand for some nutrition offerings and currency swings will hold back earnings.

“DSM assumes a continued challenging macroeconomic environment, with low growth in Europe, modest growth in the U.S., and a slowdown in the high-growth economies,” Chief Executive Officer Feike Sijbesma said in a statement.

Alstom SA plunged 22 percent. The French maker of trains and power equipment posted the biggest decline on the Stoxx 600 this week after lowering its forecast for the second time in nine months. The company said weaker-than-expected sales of thermal-power equipment meant that its operating margin will probably decrease in the next financial year.

Pearson Plunges

Pearson Plc dropped 8.5 percent, its biggest weekly tumble since May 2010, after the education company said it probably spent about 170 million pounds ($281 million) in 2013 to help focus its business on more profitable units. It had forecast expenditure of 150 million pounds. The owner of the Financial Times newspaper lowered its estimated savings to 40 million pounds from its previous prediction of 50 million pounds.

Nokia Oyj declined 13 percent after forecasting operating profit at its network business of 1 percent to 9 percent of revenue for the first three months of this year. That compares with an 11.2 percent margin for the previous quarter.

Celesio jumped 8.7 percent. McKesson, the largest U.S. drug distributor, said on Jan. 23 that it bought Celesio’s convertible bonds from hedge fund Elliott Management Corp., giving it more than 75 percent ownership of Celesio’s shares. McKesson’s previous offer had failed to reach the 75 percent threshold required for the deal to go through.

Delhaize Group SA gained 5.7 percent. The owner of the Food Lion supermarkets said fourth-quarter sales in the U.S. and in Belgium, its two main markets, increased 2.8 percent and 2.4 percent, respectively.

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