Drugmakers Lead Europe Stocks as Pfizer, Allergan Deal Collapses

Stoxx Europe 600 Index Adds 0.6 Percent
  • Stoxx 600 near lowest valuation in a year relative to S&P 500
  • Strategists predict further gains through the end of year

Health-care companies led the rebound in Europe’s stocks, after they reached their lowest levels in almost six weeks.

AstraZeneca Plc rallied 4.5 percent, the most in two years, while Shire Plc and GlaxoSmithKline Plc also gained more than 3 percent after Pfizer Inc. and Allergan Plc agreed to end their $160 billion merger. Analyst notes from Jefferies Group LLC and Bank of America Corp. in the past couple of days mentioned those companies as potential takeover targets in the case of a deal collapse. Sanofi climbed 3.5 percent.

The Stoxx Europe 600 Index rose 0.8 percent, extending its advance in the last half hour of trading after oil rallied following inventories data. 

While the gauge advanced on Wednesday, it’s been particularly volatile this year, and investors have remained distrustful of the recovery, with economic data falling short of projections for most of 2016. Managers have withdrawn money from Europe’s equity funds in past weeks as analysts have kept slashing profit estimates, now forecasting a contraction for 2016.

“Markets are very twitchy at the moment,” said Justin Urquhart Stewart, co-founder of Seven Investment Management in London. His firm oversees about $14 billion. “People have started to dip into the market, but they’re still unwilling to take a bigger risk. Investors want to see more evidence of economic growth.”

In the tug-of-war between bulls and bears, European equities lost 4.8 percent from their March 14 high through Tuesday’s close, halting a rally that took the Stoxx 600 up almost 14 percent. The Wednesday rebound took the Stoxx 600’s valuation to 14.6 times estimated earnings, near the lowest level in more than a year relative to the Standard & Poor’s 500 Index. While strategists predicted last month that the Stoxx 600 would rally 13 percent more by the end of the year, that would mark an annual gain of just 2 percent.

Among other stocks moving on corporate news, Barry Callebaut AG jumped 8.3 percent after the Swiss chocolate maker said first-half profit fell less than analysts had predicted. Hennes & Mauritz AB added 5.4 percent after reporting an increase in March sales. Domino’s Pizza Group Plc jumped 5.3 percent to close at its highest price since November.

Air France-KLM Group dropped 3.2 percent after saying late Tuesday that Chief Executive Officer Alexandre de Juniac will step down by Aug. 1. Glencore Plc fell 1.2 after selling its agriculture unit to Canada’s largest pension fund for $2.5 billion.

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