Europe Stocks' Bad Start to '16 Worsens With China Back in Focus

Pimco's Clarida on Three Things Impacting Investors
  • Mining shares lead losses after China weakens currency
  • Dialog, AMS slide after report that Apple to cut iPhone output

European stocks fell after China’s latest weakening of its currency refreshed concerns about the outlook for global growth.

The Stoxx Europe 600 Index slid 1.3 percent to 354.35 at the close of trading, its lowest level since Dec. 14. Commodity producers and carmakers -- among the sectors with most sales exposure to China -- led declines. Tuesday’s rebound from the worst-ever start to the year was short-lived: Europe’s equity benchmark is down 3.1 percent this week amid signs that China’s slowdown is worse than anticipated.

The yuan fell to the lowest level since at least 2011 after China’s central bank set the currency’s reference rate at an unexpectedly weak level. The move is reminiscent of last August’s devaluation, which stunned financial markets worldwide and sparked a selloff that saw the Stoxx 600 tumble as much as 18 percent from its record. Investors are also watching geopolitical developments after North Korea claimed to have successfully tested its first hydrogen bomb.

“China is for sure back in focus,” said Didier Duret, chief investment officer at ABN Amro NV’s wealth-management unit. His firm oversees about 205 billion euros ($268 billion). “I’d say this is an echo of what happened in August. It’s about what slower industrial activity means for the rest of the world and it’s making people nervous. It seems like all of last year’s themes have just rolled over. We need to see how policy makers will try to tame volatility this time.”

Just three days back from the worst December in more than a decade and European stock investors are coping now with the most volatile start to a year since 1999. While stocks everywhere have been whipsawed as concerns about a China-led recession mixed with divergent growth signals, Europe has borne the brunt of it. Monday’s 22 percent surge in a regional volatility measure jolted investors looking for a respite after three years of increasingly violent price fluctuations.

The VStoxx Index, which tracks the cost of options protecting against swings on the Euro Stoxx 50 Index, rose as much as 7.5 percent today.

Royal Dutch Shell Plc and BG Group Plc fell more than 2 percent, dragging a measure of energy-related companies to a fifth day of losses as the price of Brent crude fell below $35 a barrel to an 11-year low.

Among other stocks moving, Dialog Semiconductor Plc, the chipmaker whose biggest client is Apple Inc., dropped 5.6 percent as the Nikkei Asian Review reported the U.S. company would reduce the first quarter output of its latest iPhones by about 30 percent. AMS AG and ARM Holdings Plc, also Apple suppliers, lost at least 3 percent.

Publicis Groupe SA retreated 4.4 percent after Exane BNP Paribas cut its rating on the advertiser to underperform, similar to sell, from neutral, saying it is unlikely that organic growth will recover in the second half of the year.

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