European stocks rally as investors hunt for conflict-hit bargains

But it was not enough to pull the Stoxx-600 up from earlier losses as geopolitical tensions sent investors fleeing from risk

Fri, 25 Feb, 2022 - 18:30

Europe’s main stocks index roared back yesterday, lifting off nine-month lows with banks leading a broad-based rally as investors hunted for bargains following a bruising sell-off after Russia’s invasion of Ukraine.

Hopes for diplomacy aided sentiment after the Kremlin said Russian president Vladimir Putin is ready to send a delegation to Minsk for negotiations with representatives of Ukraine.

This came after missiles pounded Kyiv as Russian forces pressed their advance.

The Stoxx-600 ended the day up 3.3%, after dropping to May lows on Thursday. All major indices jumped more than 3%, with London’s Ftse-100 up almost 4%.

The rally made back all of Thursday’s steep losses, but was not enough to pull the benchmark pan-European Stoxx-600 index up for the week as the geopolitical tensions sent investors fleeing from riskier assets.

The index marked its second week in the red, down 1.6%, and is off about 8% from its peak in January.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said:

We don’t think this is a time to be outright negative on equities — sentiment is already poor, at least some of the risks have been priced in.

Banks jumped 4.3% to regain half of the previous session’s dive but they braced for impact from likely new sanctions from the West on Russia that could halt Russian banks’ access to European financial markets.

The possibility of the conflict slowing the hawkish pace of central banks have also weighed on lenders.

The ECB affirmed its commitment to ensure price and financial stability on Thursday.

The mood remained fragile going into the weekend as was evident by defensive buying.

Industrial stocks, utilities, healthcare, and consumer staples were among the biggest boost to the Stoxx-600.

“As long as uncertainty persists we expect [European equities] to remain volatile and defensive,” said HSBC analysts in a note.

Commodity-sensitive sectors such as energy and basic materials may also perform strongly, thereby reversing the value rally... The scale of action taken by NATO countries is likely to determine how markets react.

With oil and gas prices soaring in the wake of the Ukraine crisis, investors fear inflation will run even hotter and disrupt economic recovery in the eurozone due to its heavy reliance on Russia for gas supplies.

ECB president Christine Lagarde, meanwhile, said the central bank will do everything in its power to safeguard the stability of prices and the financial system in the euro area.

While it’s too early to judge the overall economic impact of Russia’s invasion of Ukraine, persistent uncertainty will likely drag on investment and consumption and impede growth, Ms Lagarde said.

Inflation is likely to be boosted further by rising energy costs.