Sharp losses for heavily-weighted telecoms stocks put European bourses under some pressure on Monday, offsetting gains in the tech sector and renewed talk of consolidation in the banking industry.
Telecoms stocks fell back after Morgan Stanley downgraded the sector following its outperformance over the past six months. The investment bank also cited the risk of stock overhang and mounting competition.
In a note to clients, analyst Paul Marsch said: “Zero growth due to the expiry of tax benefits and weakening long-term margins means that our forecast upside is now limited to 5.8 per cent, in line with the general market.”
Morgan Stanley cut its rating and target price for Deutsche Telekom, warning that a stock overhang was looming at the end of the first quarter of the year.
The telecoms sector ended the day with a decline of 0.8 per cent, with Deutsche Telekom shares down 1.7 per cent at €16.50. France Telecom retreated 2.3 per cent to €24.30 and Telekom Austria shed 1.8 per cent to €13.95.
But it was a better day for the telecoms equipment makers. Finland’s Nokia, the world’s biggest mobile phone maker, rose 1.5 per cent to €11.91 after JP Morgan upgraded the shares.
“We believe that Nokia continued to see strong volume and market share trends in the the fourth quarter of 2004,” said analyst Mark Davies-Jones. “In 2005, we think that there is scope for Nokia to build on improved share with better mix.”
Swedish rival Ericsson, one of 2004’s best-performing blue chips, rose 1.9 per cent to SKr21.60.
There were positive performances elsewhere in the European technology sector as investors took heart from an early advance for the Nasdaq Composite index in the US.
ASML, the Dutch chip equipment maker, rose 1.4 per cent to €11.40, STMicroelectronics also gained 1.4 per cent to €14.22 and Infineon edged up 0.1 per cent to €7.96.
Those gains came in spite of some broadly negative comments on the semiconductor sector by Deutsche Bank.
DB cut its target price for STM from €14 to €13. “We believe that the negative impact of the euro’s strength as well as renewed pricing pressure will result in STM displaying declining margins in 2005, despite the positive effects of new products launches, ongoing restructuring and improvements in manufacturing.”
The bank reiterated its “sell” advice on Infineon, saying it was reducing its earnings per share estimates for the company for 2005 and 2006. It maintained a “hold” rating on ASML, saying it was raising its estimates for the fourth quarter of 2004 while lowering its 2005 forecasts on the back of “growing spending unease” at chip foundries.
Fresh speculation about possible bid and merger activity in the banking industry helped enliven the sector, particularly after UK-listed Standard Chartered agreed to buy Korea First Bank for $3.3bn.
There were also unconfirmed reports that UK bank Barclays had held merger talks with Wells Fargo of the US.
Last week, rumours swept through the market that Royal Bank of Scotland could be about to launch a takeover bid for Dutch bank ABN Amro.
The talk on Monday centred on a possible bid by Italy’s Unicredito for HVB Group, Germany’s second biggest bank. There was no comment from either bank on the rumours, although traders were generally sceptical about the possibility of a bid.
HVB has been long been seen as a possible candidate for a tie-up with domestic rival Commerzbank.
Unicredito shares were little moved by the rumours, ending the day 0.1 per cent higher at €4.24, but HVB jumped 2.6 per cent to €17.28. Commerzbank finished 0.2 per cent higher at €16.29.
Credit Suisse First Boston on Monday raised its ratings on both the latter and Deutsche Bank, whose shares ended the day flat at €67.04.
Axa led the insurance sector higher after Merrill Lynch upped its rating on the stock from “neutral” to “buy” and set a 12-month price target of €21.70 a share.
“Axa underperformed both the European insurance sector and the market last year, the first time since 2001,” said analyst Blair Stewart. “This is in sharp contrast to its closest sector peers, which outperformed by between 12 and 20 per cent.”
Axa shares rose 2.5 per cent to €18.78.
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