Europe Stocks Post Second Weekly Drop Amid U.s. Shutdown

Europe’s cheap stocks set for a long catch-up rally

Public officials and private sector representatives emphasized that targets committing to build large installations in stages over a twenty-year period have created the industry in Europe and are essential. The U.S. approach so far — hit or miss, on-again off-again policy — will not work. The European experts all warned against such a self-defeating approach. The UK and Germany have had fairly stable policies to promote offshore wind for about 20 years. Unlike in the U.S., Europe has a consensus in favor of offshore wind despite changes in governments. A Commercial Industry, Not R&D. The key issue in Europe is how to get projects to scale, to co-locate multiple gigawatt projects, to raise billions of dollars. The talk there is not about more research, although that is happening. Instead, the industry walks and talks like a serious commercial sector poised for greater growth, unlike in the U.S. where governments tend to view this area as a research arena. The basic technology works, and more R&D won’t get existing technologies to scale. But, R&D and demonstration in new technologies like floating turbines could be important actions for the U.S. offshore wind market development.

Popolare di Milano surged 16 percent and Mediobanca gained 12 percent in Milan trading. UniCredit SpA, Italy s largest lender, advanced 9.6 percent. Unilever dropped 3.7 percent in London trading after saying Sept. 30 that underlying revenue for the third quarter rose 3 percent to 3.5 percent. The worlds second-biggest consumer-goods maker reported 5 percent growth in the first half and second quarter. A gauge of food and beverage stocks was the second-worst performer among 19 industry groups in the Stoxx 600. Nestle SA, the worlds biggest food company, lost 1.7 percent. SABMiller Plc slipped 4.8 percent for its biggest weekly decline since November 2011 amid a strike at its South African beer division. Nokian Renkaat Nokian Renkaat tumbled 9.7 percent, the biggest weekly drop since October 2012. Full-year net sales and operating profit will decline because of the rubles retreat against the euro, the Nordic regions biggest tiremaker said. Hochtief AG, which owns a controlling stake in Leighton Holdings Ltd., lost 4.9 percent for the largest slide since June. Leighton, Australia s biggest builder, allegedly paid bribes to win contracts, the Age newspaper reported. Former chiefs Wal King and David Stewart were aware of the conduct, according to the report.

Typically, stock market rallies start with investors snapping up the most stable, “quality” companies, before moving into stocks with the best earnings growth prospects. When that trade becomes crowded, they pour into whatever is still cheap, before ceasing to buy altogether. That final phase has now started: for the past three months, value funds invested in Europe’s cheapest large caps have attracted more money than those buying firms for their growth potential, according to Morningstar. After lagging for four of the past five years, value stocks – now touted by JPMorgan, Societe Generale, Nomura and Natixis, among others – have a lot of catching up to do. On a stock price to earnings basis, the gap between value stocks and growth shares is among the widest seen in the past decade, according to Thomson Reuters Datastream. “Finally, you have some areas of the market that are becoming investable again – banks, peripherals. They have massively underperformed for three or four years because of economic activity in Europe, political uncertainty, etc. The catch-up could take a few years,” said Emmanuel Cau, equity strategist at JPMorgan. Top weights in the MSCI Europe Value Index include bank HSBC , and energy giants BP, Royal Dutch Shell and Total. While the STOXX Europe 600 trades at 12.6 times next year’s expected earnings, according to StarMine, HSBC trades at 10.4 times, BP at 7.7 times, with Shell and Total both at 8.2 times. The amount of money invested in European large-cap value equities was 24 billion euros ($32.49 billion) by the end of August, half as much as five years ago, Morningstar data shows.