Trump-Trade Reversal Sees European Stocks Losing More Ground

  • Miners, construction firms slide after Wednesday’s rally
  • Aberdeen Asset, Ashmore tumble on emerging-market concern

Stoxx 600 Rally Pauses

Winners and losers among European stocks in the immediate aftermath of Donald Trump’s election victory swapped places on Friday, sending equities lower.

Industry groups that rallied as Trump defeated Hillary Clinton lost ground, while those that were punished recovered, on bets the moves went too far. Construction firms and commodity producers were among the worst decliners, after rallying Wednesday on optimism of higher infrastructure spending. Drugmakers also fell, after surging on speculation of less regulatory oversight. Bond-proxy sectors such as utilities and real estate firms rebounded from two days of losses.

The Stoxx Europe 600 Index fell 0.4 percent at the close after failing to hold opening gains of as much as 0.7 percent. The second daily drop trimmed the benchmark’s biggest weekly rise since July. European equities lost momentum after a three-day rally that broke their longest spell without gains since 1994.

“We’re taking a breather and beginning to think about the wider repercussions of” Trump’s win, said Witold Bahrke, a macro strategist at Nordea Investment Funds in Luxembourg. “You can say this is pro-growth and pro-equity, but it depends hugely on the concrete type of measures he takes. We are moving away from the hope phase to the delivery phase.”

After an initial selloff prompted by the surprise of Trump’s win wore off, European stocks on Wednesday were boosted by industries seen benefiting from the outcome. Heavyweights such as banks and health-care shares rallied, as did miners and construction. The Republican’s promises to increase public spending also spurred bets for higher inflation, dragging down defensive shares such as utilities and real estate. The Stoxx 600 is up 2.7 percent this week.

Emerging-market focused money managers tumbled on Friday amid concern the Federal Reserve will become more aggressive in raising rates under a Trump-led administration. Ashmore Group Plc and Aberdeen Asset Management Plc lost at least 7 percent. Lender Standard Chartered Plc, which gets most of its revenue from Asia, slipped 6.3 percent.

The implications of the vote are “most significant in the emerging markets, which are a dangerous place to be not only in the coming weeks, but probably also the coming months,” said Bahrke. “Partly because of the protectionism tendency in the U.S. policy from now, but also because of the significant rise in the dollar, we might have focused too much on the pro-growth outcome of this election, and not enough on the flip side of the coin -- much tighter financial conditions primarily driven by the dollar.”

The Stoxx 600 Banks Index fell 0.2 percent, after surging 7.8 percent in the past four days on bets higher inflation will improve profitability and financial rules will ease. Deutsche Bank AG tempered the drop, up 4.6 percent as Barclays Plc said European lenders may reach faster, cheaper settlements with the U.S. Department of Justice after Trump’s win. Unione di Banche Italiane SpA also gained, up 8.3 percent after posting net income that beat estimates.

Carmakers were the biggest advancers after Trump selected a prominent critic of global warming to lead his environment agency’s transition team. Fiat Chrysler Automobiles NV, which gets most of its revenue from the Americas, rose 5.6 percent. BMW AG and Volkswagen AG added at least 2.4 percent.

Among other movers today:

  • Randgold Resources Ltd. and Fresnillo Plc fell more than 6.7 percent, dragging down a gauge of miners from its highest level since June 2015. 
  • Royal Dutch Shell Plc and BP Plc paced a slide in energy shares as key OPEC members said they raised crude output.
  • PostNL NV slid 5.1 percent after it rejected a 2.5 billion-euro ($2.7 billion) approach from Bpost SA, saying the proposal’s value is too low and potentially puts the Dutch company under the Belgian government control.
  • Allianz SE rose 1.4 percent after it reported an increase in quarterly profit, boosted by its life and health insurance unit. 
  • Gamesa Corp. Tecnologica SA advanced 6 percent after raising its 2016 earnings forecast.
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