Europe close: Evergrande saga, German Ifo survey a drag on stocks
Investors eye Sunday elections for successor to Merkel
European stocks finished the week lower as worries over debt-strapped property developer China Evergrande and a weak German business confidence survey weighed on investor sentiment.
The pan-European Stoxx 600 index closed down 0.90% at 463.29 with all major regional bourses following suit. The benchmark is now 1.92% lower over the past month.
Concerns over China Evergrande's debt repayment situation sent its shares in Hong Kong tumbling 7%. The Wall Street Journal reported Thursday that Chinese authorities have told local officials to prepare for a potential demise of the company.
Uncertainty also remained around whether Evergrande will pay the interest that was due Thursday on a dollar-denominated bond.
“There has been no update on the coupon payment which fell due yesterday, but increasingly there are some hopes that any default would have limited contagion outside of China, due to its lesser links with the global system,” said interactive investor analyst Richard Hunter.
European Central Bank President Christine Lagarde told CNBC she believed Europe’s direct exposure to the embattled company would be “limited.”
In Germany, business morale fell for the third month running in September, as manufacturers experienced a "bottleneck recession" due to the supply chain crisis, according to a survey released on Friday.
The Ifo institute said problems in the procurement of raw materials and intermediate products “are putting the brakes on the German economy” as its business climate index fell to 98.8 from an upwardly revised 99.6 in August. The DAX index closed 0.7% lower.
Elsewhere, the Bank of England on Thursday kept monetary policy unchanged, downgraded economic growth projections for the third quarter and warned of rising inflation.
"The week has been littered with central bank meetings and there has been so much to take away from them. The Fed is determined to taper this year despite rising risks and slowing growth, while the BoE is expected to raise rates sooner and twice next year as it prepares for higher inflation. Both view inflation as transitory, still, but not everyone is as confident as they were," said OANDA analyst Craig Erlam.
Germany goes to the polls on Sunday in an historic election that will see the departure of Chancellor Angela Merkel after 16 years. IG analyst Chris Beauchamp suggested some of the hesitancy in European markets could be attributed to the national elections "which promise to be the most interesting in some time".
"Markets are facing a change of direction in Germany unlike anything seen in the past decade or more, and the end of Merkel’s tenure promises to be a watershed moment for the EU and global investors alike. It is not surprising therefore that the Dax is down for the day, but unlike the UK and the US the current German body politic is not given to sudden changes, and a ‘traffic light coalition’ will mean that change will not be too rapid or dramatic," he said.
In equity news, shares in EQT, Europe’s biggest listed private equity firm, fell 4.6% after news it was being investigated by the Swedish Financial Supervisory Authority for suspected market abuse.
The financial watchdog said it is probing a $2.7bn public offering that allowed several executives to sell shares. The announcement from the regulator comes exactly on the two-year anniversary of EQT’s initial public offering.
German sportswear makers Adidas and Puma fell after Nike cut its fiscal 2022 sales expectations and said it expected delays during the holiday shopping season, blaming the global supply chain crisis. JD Sports also fell on the news.
On the positive side, AstraZeneca gained rise as its cancer drug Lynparza met its primary goal in a late-stage trial.