Brexit Jolts European Stocks With Trading Like Never Beforeby
Stoxx 600 had its biggest two-day plunge since 2008 after vote
FTSE 100 recovered from post-Brexit selloff as pound tumbled
June was a month for the record books in European stocks.
The U.K.’s decision to leave the European Union sent the number of Stoxx Europe 600 Index shares changing hands to a daily average of about 4.1 billion, the most since May 2010. Last Friday, equity volume reached its highest ever as investors caught off guard after a five-day rally in the run-up to the vote rushed to safe assets.
It was a harrowing month for European equity investors who swung between optimism and pessimism amid polls and the vote result, leading to a deluge of buy and sell orders. The sentiment turned to panic on June 24, when the prospect of a U.K. secession became more certain. The Stoxx 600 plunged the most since October 2008, with 11.5 billion shares tied to the index changing hands, the most since at least 1998. Gold posted its biggest jump in seven years.
“A lot of people, including myself, were caught on the wrong foot,” said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany. His firm manages about 250 million euros ($277 million). “This high volume is proof that a lot of investors expected another result. The majority was sitting in the same bus when the results came in.”
Volatility for Europe’s equities surged the most since August this month through Thursday as stocks zigzagged between rallies and slumps. The Stoxx 600 was on track for its best week since 2011 before the ballot result hit the market, wiping off almost $1.6 trillion from the region’s equity values. Then came the best two-day rebound since February, with the index erasing about half of its slide from the vote’s aftermath.
For Europe, where skepticism about the economic recovery was already prominent, the referendum has been another hit. The region’s equity funds have seen outflows for 20 straight weeks, according to a Bank of America Corp. report citing EPFR Global data. While U.S. shares have recovered from their annual declines, the Stoxx 600 remains down 11 percent, with its valuation of about 14 times estimated earnings near the lowest level since 2012 relative to the American gauge.
Both the Bank of England and the European Central Bank stressed the availability of liquidity, but it’s still unclear how and when a U.K. secession will happen and volatility is poised to persist. While Britain’s FTSE 100 Index managed to erase its post-Brexit vote decline thanks to a weakening of the pound, the Stoxx 600 remains down 5.9 percent for the month, dragged lower by shares of lenders. They sank 18 percent, the most since Lehman Brothers Holdings Inc.’s collapse in 2008, and an average of about 2.1 billion shares tied to the Stoxx 600 Banks Index changed hands in June, almost double the average for the previous year.
Otto Waser, chief investment officer of R&A Group Research & Asset Management in Zurich, said his firm took advantage of the plunge to buy stocks deemed safer, such as drugmakers. He expects the economic impact of the U.K. quitting the EU to be subdued in the longer term.
“We’re stocking up a bit on Roche and Novartis because the correction was too big,” said said Waser. “In the end, we don’t see the U.K. economy looking that much different five years from now.”
(A previous version of this story was corrected to reflect that billions of shares were traded this month, not millions.)