London: European shares fell to their lowest in more than 14 weeks on Tuesday after Japan warned of significantly higher radiation levels following explosions at one of its quake-stricken nuclear power plants.
Broker Nomura said continued uncertainty regarding the efforts to stabilise certain nuclear facilities would keep stocks under pressure but that the stock market could eventually recover relatively quickly.
Appetite for risky assets such as equities fell further, with the VDAX-NEW volatility index surging 40% to its highest in more than nine months. Japanese stocks plunged more than 10%, with the two-day fall wiping $620 billion off the market.
The FTSEurofirst 300 index of top European shares fell for a fifth straight session and was down 3.3% at 1,072.94 points at 03:10 am after falling to a low of 1,067.18, the lowest level since early December. Volumes were already 70% of its 90-day daily average.
“The market will do its best to price in the worst-case scenario, and we will move forward from there. But the situation is very fluid and changing from hour to hour, and we have also got events in the Middle-East to consider,” said Keith Bowman, equity analyst at Hargreaves Lansdown.
“The Japanese funds have a considerable amount of foreign debt, and there are concerns that the events may cause them to sell some of their debts and repatriate the funds back home.”
With low levels of radiation floating towards Tokyo, Japanese Prime Minister Naoto Kan urged people within 30 km (18 miles) of the facility north of the capital to remain indoors.
Automakers’ stocks were the worst performers, with the sector index down 5% following plant closures and on concerns about the supplies of auto parts. BMW fell 4.4%, while Daimler AG slipped 5.9%.
Across Europe, Germany’s DAX, France’s CAC 40 and Ireland’s ISEQ fell 3.4 to 4.7%, while the Thomson Reuters Peripheral Eurozone Countries Index was down 3.5%.
Britain’s FTSE 100 fell 2.7% to 5,619.55 points. Technical analysts said the index had clearly entered into a corrective phase after breaking down through its medium-term uptrend and the 50-day moving average.
A drop below its November low of 5,519 would open the door for a slide towards 5,450, they added.
Insurers were also on the back foot as estimates suggested that the quake could cost the industry nearly $35 billion. The STOXX Europe 600 Insurance index fell 3.4%, with AXA down 3.2% and Prudential falling 4.1%.
“Before the earthquake, the markets spent a long time range-bound, so the break lower has caught a lot of bulls off guard. But there has been some shorting of insurers in the latter part of yesterday and this morning,” said Angus Campbell, head of sales at Capital Spreads.
Investors have been picking up put options on Euro STOXX 50 to hedge against the downside risk, with interest centred at June expiry with the right to sell the index at 2,100, said Nick Tranter, head of derivatives at Espirito Santo.
Danish jewellery maker Pandora fell 17% after it said it expected a sharp slowdown in growth this year.