London: European shares bounced back from five-month lows on Monday as investors bought into some stocks and sectors that had been particularly badly hit in the previous week’s sell-off, although charts signalled that the downtrend could resume again.
Auto shares were the top gainers, up 2.3 % and led by a 5.9% gain by Renault after UBS added the French carmaker to its key call list.
The auto index fell 7.7% last week, exceeding losses incurred in the broader market, which fell mainly on concerns Greece might quit the euro zone and Spain’s ailing banks might cripple the country’s already slumping economy.
At 0841 GMT, the FTSEurofirst 300 index of top European shares was up 0.6% at 975.61 points after falling to 964.66, its lowest since December. The index fell more than 5% last week - its worst week since September.
The euro zone’s blue chip Euro STOXX 50 index, which fell 4.9% last week, was up 0.6% at 2,158.55 points. Although charts showed more weakness in the near term.
“We could just see a relief rally for a couple of days,” Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said. “The index will face a strong horizontal resistance area between 2,185 and 2,255 from where the downtrend should resume.”
This month’s intermediate highs and last December’s low were set to provide strong resistance. Charts showed the index could find support at around November lows of 2,065.
Investors remained wary about equities.
“The fact remains that there is still a question mark over Greece and there are ongoing concerns about a slowdown in China. There is a great deal of cash on the sidelines, waiting to be invested. But with the uncertainty, that money is likely to stay on the sidelines,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.
Investors are concerned about the risk of a chaotic Greek exit from the euro, which would hit the region’s banking system and possibly the global economy.
The Group of Eight economies on Saturday recognised problems among European banks and gave verbal backing for Greece to stay in the euro, but markets were sceptical.
European banks were up 0.9%, partly recouping a 8.7% decline last week. Banco Popolare jumped 12% after BofA Merrill raised its stance on the bank to “buy” from “neutral”.
Analysts said that the best investment strategy in the current environment was to look at individual companies that had potential to provide strong balance sheets and dividend yields.
“Investors are looking to identify stable, strong cash-generative companies which do have geographical diversification. It’s a kind of bottom-up approach rather than a top-down approach,” Hunter said, adding that companies such as Vodafone could be a good investment choice.
Vodafone shares were up 0.5%.
On the downside, European travel and leisure shares fell 0.2%, with Ryanair falling 4.3% after warning that surging fuel costs and a worsening economic outlook meant profit would slip by up to 20% in the coming year.