Photographer: Ralph Orlowski/Bloomberg

No Cure for Europe Share Vertigo With Most Swings Since June

European stock traders are having a hard time making up their minds lately.

Daily swings are widening out again as volatility bleeds in from China, with the Stoxx Europe 600 Index swinging between gains and losses for three of the past four days, the longest streak since June. Prices finally moved in one direction on Wednesday, in this case down, as the gauge lost 1.8 percent. The Stoxx 600 fell another 2.1 percent on Thursday.

“The market has gone back and forth, but with a downward bias,” said James Buckley, who helps oversee about $43 billion at Baring Asset Management in London. Weakness in China’s currency “has implications not just for European corporates, but for the economy globally,” he said.

Investors gave in to fears that a rout in emerging markets following China’s currency devaluation will hurt exporters. They sold shares that were favorites at the start of the year: automakers fell to a seven-month low, while Germany became one of the worst-performing developed markets this month.

The Stoxx 600 fluctuated between daily gains of at least 0.5 percent and drops exceeding 0.4 percent from Friday to Tuesday as volume dried up. Trading was about a third the monthly average on those days, the least since May. On Wednesday, it was back closer to its mean.

Cheaper Stocks

Some investors are getting ready to jump back in and snap up shares at cheaper prices. The valuation of Stoxx 600 companies has fallen to 16.2 times estimated earnings from a high of 17.4.

“The economy, earnings, pretty good delivery outside energy, relative value versus bonds -- there’s still plenty of positives in Europe,” said Alan Higgins, chief investment officer at Coutts & Co. His firm oversees about $48 billion. “The market is trying to come to terms to just how weak the Chinese economy is. Greece was kicked off, and now China needs to be kicked off.”

Nervousness in the market is growing. A gauge tracking expectations for stock volatility has jumped 36 percent from a low in July. The DAX tumbled 2.1 percent on Wednesday for a fourth day of declines. On Tuesday, it closed below its 200-day average for the first time since January.

“There hasn’t been a lot of European data in the past two weeks, and the earnings season is largely over, so we’re back to more macro-driven environment,” said Baring’s Buckley.

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