EUROPEAN STOCKS TURN DEFENSIVE OVER LOCKDOWN FEARS
European stocks inched higher on Tuesday, January 19, 2021, as possible extension of German lockdowns drew investors into defensive sectors such as healthcare and telecoms, Amal S. Sruthi Shankar reported for Reuters.
After gaining almost half a percent at the open, the pan-European STOXX 600 index rose just 0.1% by 0938 GMT, while Germany’s DAX and London’s blue-chip index rose 0.2% each.
Gains at the open were fueled by Asian stocks closing in on all-time highs as investors wagered China’s economic strength would help underpin growth in the region after data confirmed the world’s second-largest economy was one of the few to grow over 2020.
However, the prospect of longer lockdowns in Europe kept investors on edge, with German Chancellor Angela Merkel set to agree with regional leaders to extend a lockdown for most shops and schools until mid-February, sources told Reuters.
Defensive sectors that tend to remain immune to economic cycles such as healthcare, telecom and utilities gained the most, while retail stocks took the biggest hit. “With the extension of lockdowns, Q1 GDP growth will be negative, in Germany and euro area as well,” said Matthias Bausch, senior cross asset strategist at Commerzbank.
“However, the current situation is not the important driver for equity markets. If investors realize that lockdowns might be extended into Q2 or Q3, there is a much bigger risk.”
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