European Stocks Buck Global Trends as Trading Volume Surgesby
The Stoxx 600 dropped in February for a third straight month
Volatility index for European equities is high relative to VIX
Trading in European stocks surged to the highest level since 2011, countering global trends and showing the extent to which investors betting on gains in the region got caught off guard when markets turned lower.
The number of shares tied to the benchmark Stoxx Europe 600 Index that changed hands jumped to almost 3.7 billion a day on average in February, according to data compiled by Bloomberg. That compares with less than 2.9 billion from 2012 to 2015. The surge came as volume fell from Asia to the U.S., dropping 18 percent in the MSCI All-Country World Index from January and 20 percent from a year ago.
After months of inflows into the region’s stock funds amid optimism that European Central Bank stimulus would help revive the economy, traders began pulling money as the recovery started showing signs of faltering. The latest blow was on Monday, when data showed consumer prices turned negative. The Stoxx 600 completed a third straight month of losses, its longest streak since 2012.
“Portfolio managers that were mostly all in the same boat -- meaning long Europe -- were forced to sell, having not a lot of cash on the sideline,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “All that panic increased volume.”
The Stoxx 600 fell 2.4 percent in February -- more than stocks worldwide -- and an index tracking expectations for European equity swings reached its highest level since August relative to its U.S. counterpart. Traders pulled more than $6 billion from the region’s stock funds in three weeks, according to Bank of America Corp. reports citing EPFR Global data.
That’s a strong reversal from 2015, when the European stock measure climbed 6.8 percent while global shares fell, beating the Standard & Poor’s 500 Index for the first time in three years.
Now trust in the economic revival has been shattered. President Mario Draghi’s comments in January that the ECB may add to its stimulus program this month failed to spur a rally that lasted more than two days. By Feb. 11, pessimism had dragged the Stoxx 600 to its lowest level since 2013. The next policy meeting will take place next week.
“The ECB will take action, but it’s also a fact that past action hasn’t cured the illness as it was expected,” MPPM’s Sampere said. “We should not get too excited about Mr. Draghi’s toolbox.”
The declines have sent valuations lower, taking the multiple for European shares to 14.5 times estimated profit -- about 8 percent cheaper than those on the S&P 500. But for many investors, that’s not enough to get back in.
“Investors were probably quite high on European equities while they had maybe less conviction on the U.S.,” said Pierre Mouton, who manages about $9 billion at Notz, Stucki & Cie. in Geneva. “When it’s selling time, they tend to sell where they are overweight, which is probably more so in Europe than the U.S.”