In Europe: European shares rise on Greek austerity bill vote

13 February 2012

‘Bitter medicine’ to be swallowed by Greece, “fundamental picture” still to be addressed.

European shares rose on Monday after Greece’s parliament approved at the weekend the deeply unpopular austerity bill needed to secure the next EU/IMF rescue package and avoid a messy default on its debts.

Greek banks were the standout gainers, up 12.3 percent, and are up more than 86 percent in 2012. The wider STOXX Europe 600 Banking Index rose 1.1 percent. Much of the sector is exposed to the debts of the struggling countries of the euro zone periphery, and strategists are becoming slowly more confident that the crisis in the region is being contained.

At 1232 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,072.50 points. The index is up more than 25 percent from the 2011 lows hit in September.

“You have to take the view that it’s (the Greek vote) got to be good for risk assets, good for equity markets — a reasonably positive development,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London.

Greece must avoid a disorderly debt default or face “devastating consequences”, the EU’s top economic official said on Monday, signalling that euro zone finance ministers were ready to agree a second rescue package for Athens this week.

“The crisis aspect of euro zone sovereign debts seems to have been subdued. That enables markets to focus on other aspects of the fundamental picture,” said Lenhoff, who believes the rally could continue.

He cited increased corporate activity as evidence of more confidence among companies.

Britain’s Cable & Wireless Worldwide soared 29 percent after Vodafone Group, the world’s largest mobile operator by revenue, said it was considering an offer for the company. Volumes were more than five times the 90-day average by midday. Vodafone rose 0.7 percent.

Coming days after commodity trader Glencore’s proposed $41 billion takeover bid for mining group Xstrata , investors said there were hopes these moves heralded a new dawn of takeover activity.

“There are definitely a lot of corporates in a position to do more with their cash,” said Alastair McLeod, who manages a 20 million pound equity fund for Rivercrest Capital.

“Instead of just doing share buybacks or restructuring their debt, you might actually see them spend some money, whether it’s M&A or whether it’s trying to do some more constructive investments.”


Miners were also among the gainers, as the stronger euro helped boost the price of copper and other metals. The STOXX Europe 600 Basic Resources Index rose 1.9 percent and is up 18 percent in 2012. Cyclicals, many of which underperformed in 2011, are outperforming in 2012 on encouraging growth data, notably in the United States.

German construction group Bilfinger Berger rose 2.2 percent after saying it would pay shareholders a special dividend of 0.90 euros per share, passing on capital gains from the sale of its Australian business. It also posted results ahead of expectations.

“The results season is proving to be solid rather than spectacular, but there is nothing here to strike real fear into investors’ hearts,” HSBC strategists said in a note.

“Latest quarterly results confirm we have reached a second derivative moment where the pace of downgrades is slowing.”

It said European equities often increase from this point, even as downgrades continue.


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