Insurers Drag Eurostocks To Five-Year Lows

September 23, 2002
By William Kemble-Diaz

LONDON, Sept 23 (Reuters) - Pan-European benchmarks slumped to five-year lows in late trade on Monday as fears of political instability in Germany added to economic and corporate earnings concerns, while oil prices surged as the war drums beat louder.

Beleaguered French telecoms equipment group Alcatel led the rout, losing 16 percent after Canada's JDS Uniphase -- the world's No.1 maker of fibre-optic components -- lowered its first-quarter sales guidance.

Insurers were also pummelled, with Germany's Munich Re off 10.4 percent after its price target was cut by investment bank Morgan Stanley.

Some strategists said they saw a little light at the end of the tunnel, with shares down 14 percent so far this month and valuations increasingly attractive, but were keeping their options open for the time being.

"I'm in danger of becoming optimistic but not yet -- I'm not into catching falling knives," said Robert Kerr, pan-European equities at Bank of America.

"The valuation hard nuts are cracking and on balance, the momentum of economic expectations is only marginally negative, so I don't get the impression that economies on both sides of the Atlantic are heading down the tubes."

By 1549 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index of pan-European blue chips was down 3.4 percent at 820 points.

That left the benchmark on course for its weakest close since the spring of 1997.

Falling stocks outnumbered gainers by more than 14-to-one.

The narrower DJ Euro Stoxx 50 index was also down around five year lows, shedding 3.9 percent to 2,218 points.

Analysts said investors had been disheartened by the result of Sunday's elections in Germany, which returned the incumbent government to power with a sharply reduced majority.

With Europe's biggest economy stalled, unemployment stuck at around 10 percent and stock markets mired at their lowest level in over five years, investors had hoped a conservative-liberal coalition would initiate structural reforms.

INSURERS UNDER PRESSURE

The DJ Stoxx insurance index led the sectoral loser board, shedding 6.7 percent as investors fretted about the falling value of insurers' stock holdings and the impact that was having on their solvency ratios.

"Insurance companies currently have little going for them," said analysts at SG Securities.

"They lack pricing power in life assurance and their prudential ratios have been hit by a fall in unrealised capital gains and higher premium rates. We recommend waiting for the forthcoming wave of rights issues before... moving back into the sector."

Bancassurers ING and Credit Suisse Group, Dutch insurer Aegon and Britain's Prudential lost between 8.0 percent and 10.8 percent.

Gloom about the outlook for financial markets also hammered UK fund manager Amvescap, which saw its shares ease.

Elsewhere in financials, shares in British bank Barclays fell more than eight percent after investment bank J.P. Morgan cut its earnings forecast, blaming a tough outlook for credit quality, difficult conditions at Barclays Capital and asluggish retail banking environment.

The oil and gas sector outperformed the rest of the market, as a spike in crude oil prices due to the threat of a U.S.-led attack on Iraq helped counter concerns over easing demand.

BEIERSDORF, UNILEVER CHEER

German consumer brands company Beiersdorf provided a spot of brightness, leaping 11.6 percent on reports that its larger U.S. rival Procter & Gamble was considering buying a stake in the firm.

Meanwhile, Anglo-Dutch consumer goods giant Unilever Plc/NV notched up a 2.7-percent gain after saying it was on course for mid-teens earnings growth and sales growth of its leading 400 brands of 4.5 to 5.0 percent.

Chip-related stocks were hobbled after Deutsche Bank cut its rating on Dutch semiconductor equipment maker ASML and lowered its revenue growth forecasts for the sector, citing its increasingly bearish stance on global chip makers.

ASML shed 11.2 percent, Dutch sector rival Philips sank 6.7 percent, France's STMicroelectronics lost 7.0 percent and Germany's Infineon Technologies skidded 11.2 percent.

In New York, the Dow Jones industrial average was down 2.4 percent, while the Nasdaq Composite shed 2.7 percent to hit yet another five-year low.

On the data front, U.S. leading indicators fell for the third straight month in August, by a slightly worse-than-expected 0.2 percent, confirming economists fears of a slowdown in the world's largest economy.

http://biz.yahoo.com/rf/020923/markets_europe_stocks_9.html