European Stocks Rally for Second Week on Growth OptimismJonathan Morgan
European stocks posted a second weekly advance, with the benchmark index reaching a six-year high, as mining companies rallied and the World Bank’s upgrade of global-growth forecasts offset concern over valuations.
PSA Peugeot Citroen led the gain, completing its biggest weekly increase in eight months. Rio Tinto Group helped a gauge of commodity producers surge the most in two years after Citigroup Inc. made a bullish case for the industry. Deutsche Bank AG climbed 6.8 percent, tracking European lenders higher, as an international supervisory group eased minimum-capital norms. Ashmore Group Plc dropped 13 percent after clients withdrew $3.5 billion from the emerging-markets money manager.
The Stoxx Europe 600 Index rose 1.8 percent to 335.82 this week. The measure has added 2.3 percent since the start of 2014, after a 17 percent rally last year, as central banks pledged continued support for the economic recovery. That sent the gauge’s price-to-earnings ratio, based on its members’ estimated earnings, to 14.1, above the five-year average of 12.1.
“The World Bank’s growth forecasts were the first trigger which made markets such as Germany jump to new highs,” Soeren Steinert, who helps manage about $24 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, said. “Investors not wishing to miss out on ongoing gains were squeezed back into the market.”
National benchmark indexes rose in 16 of the 18 western European markets. The U.K.’s FTSE 100 gained 1.3 percent. Germany’s DAX advanced 2.9 percent, for the best performance among the developed markets tracked by Bloomberg. France’s CAC 40 increased 1.8 percent.
The World Bank raised its global-growth forecasts, predicting the economy will expand 3.2 percent this year. That is higher than its June projection of 3 percent. The Washington-based lender raised the estimate for growth in the richest nations to 2.2 percent from 2 percent. Part of the increase reflects improvement in the 18-country euro area.
Earnings for companies in the Stoxx 600 will climb 13 percent in 2014 after a 5.3 percent drop last year, according to analysts’ estimates compiled by Bloomberg.
The average daily volume this week on the Stoxx 600, across all exchanges, was 12 percent higher than the average of the past 12 months, according to data compiled by Bloomberg. Expected volatility on the Euro Stoxx 50 Index, based on options prices, fell to the lowest in four weeks.
The Basel Committee on Banking Supervision eased some rules linked to the leverage ratio, the capital banks must own as a proportion of their total lending, amid concern tighter rules may curb credit growth. While the oversight body amended how banks must calculate the size of their assets, it didn’t change the percentage of their own funds needed to meet the rule, which stays at 3 percent.
Deutsche Bank advanced 6.8 percent, rising for a second week. Banca Popolare di Milano Scarl also jumped 6.8 percent. Banco Espirito Santo SA added 4.7 percent.
PSA Peugeot Citroen surged 15 percent after Sanford C Bernstein & Co. upgraded the French carmaker to outperform, similar to a buy rating, from market perform. The brokerage cited its strong engineering and product range and its investment in new technology.
Separately, Peugeot’s board will meet on Jan. 19 to decide on an investment of about 1 billion euros ($1.4 billion) from China’s Dongfeng Motor Corp. and the French state, people familiar with the matter said.
A gauge of mining companies posted the best performance among the 19 industry groups on the Stoxx 600, rising 7 percent, the biggest increase since 2011. Citigroup turned bullish on European miners for the first time in three years.
“Our move reflects better bottom-up fundamentals, particularly from the major miners,” analysts including Heath R. Jansen wrote in a note. “We would rather be too early than too late in making this call.”
Rio Tinto gained 7.7 percent. The world’s second-largest mining company cut cash costs by more than $2 billion and halved exploration spending to $948 million last year, beating the targets set by Chief Executive Officer Sam Walsh. Fourth-quarter iron-ore output climbed 7 percent from a year earlier, in line with estimates.
BHP Billiton Ltd. increased 6.2 percent. Citigroup upgraded its rating on the company to buy from neutral.
Ashmore tumbled 13 percent. The company said assets under management fell 4.1 percent to $75.3 billion in the three months to Dec. 31, as net outflows overshadowed a $300 million investment gain.
Premier Oil Plc tumbled 8.8 percent. Liberum Capital Ltd. said the U.K. explorer’s forecast for 2014 output of 58,000 to 63,000 barrels of oil equivalent a day missed its estimate.
ASML Holding NV, Europe’s largest semiconductor-equipment supplier, lost 6.4 percent. Taiwan Semiconductor Manufacturing Co. forecast quarterly revenue that missed estimates.