By Sofia Horta E Costa
The bearish sentiment that engulfed European equities in recent weeks is being vindicated after results of the US presidential election showed Donald Trump will govern the region's biggest export market.
That's bad news for European companies that get most of their revenue from America, after they fell more than twice as much as those more dependent on the region in the past two months. The Stoxx Europe 600 Index lost 1.8 per cent at 8:10 a.m. in London, led by declines in banks and automakers. The euro earlier rose as much as 2.5 per cent against the dollar.
Spanish lenders Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA, which have high exposure to emerging-market assets, lost at least 5 per cent. Credit Suisse Group AG, which relies on the Americas for more than a third of its revenue, retreated 3.5 per cent. Daimler AG dropped 5 per cent, leading carmakers lower. Randgold Resources jumped 10 per cent as gold soared the most since the Brexit referendum. A gauge of health-care stocks posted the only gain among industry groups, with Novartis AG, Novo Nordisk A/S and Roche AG contributing the most.
A win for Trump is a further setback for a bloc that has had to contend with the UK secession vote, as well as doubts over the health of its lenders and the efficacy of central-bank stimulus. While those concerns hurt companies dependent on domestic demand earlier in the year -- just as a strengthening US economy helped buoy exporters -- the tables turned in the past weeks amid angst that the outcome of the presidential election could damp global trade.
European companies get about 17 per cent of their total revenue from North America.Credit: Bloomberg
"A Trump win is expected to damage trade," said James Butterfill, head of research and investment strategy at ETF Securities in London. He's been in the office since 3:30 a.m. "Traders are already expressing their worries through a depreciating dollar, which is bad news for European companies. Another problem for Europe is that there's a populist wave going on, and this adds momentum to that. It's worrying because we have so many elections coming up over here."
European companies get about 17 per cent of their total revenue from North America, with those in Belgium, Ireland and Switzerland among the most exposed, Morgan Stanley estimated in May. Europe is also the only region in the world that gets the majority of its sales from overseas, making it particularly vulnerable to global economic and political risks and to currency fluctuations. A stronger euro makes European products less competitive abroad.
Here are the moves for the region's major national indexes:
- Germany's DAX Index lost 2.2 per cent, led by Daimler.
- France's CAC 40 Index fell 1.9 per cent, led by Axa SA.
- The UK's FTSE 100 Index slid 0.6 per cent, dragged by banks and energy producers.
Through Tuesday, the Stoxx 600 had already lost about twice as much as the S&P 500 Index since a high on Sept. 5, while the region's volatility gauge posted its second-longest run of gains on record. The European equity measure fell to a four-month low on Friday, completing its longest stretch without progress since 1994, amid a global selloff as the Federal Bureau of Investigation reignited controversy over Hillary Clinton's e-mails. A subsequent second exoneration provided a fillip for the shares in the past two days.
A win for Trump is a further setback for a bloc that has had to contend with the UK secession vote.Credit: AP
A Goldman Sachs Group index of European firms that get about half of their sales from the US declined 5.9 per cent from the market's peak in September through yesterday, compared with a drop of just 2.4 per cent for a gauge tracking companies that mostly rely on Europe. European firms that sell to America have fared better than members of the domestic-exposed measure every year but one since 2008.
"The strong trading links and the fact that major European companies are pretty active in the US make this a pretty significant outcome for stocks over here," said Dirk Thiels, head of investment management at KBC Asset Management in Brussels. "A Trump win just injects uncertainty. We don't know exactly what his plans are and to what extent he'll be able to implement his policies."
Bloomberg