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Korea tensions keep European shares in check

European shares

European shares steady amid Korea tensions

European shares steadied on Friday, as tensions over North Korea kept some investors on the side lines. North Korea has threatened to test a hydrogen bomb over the Pacific Ocean after U.S. President Donald Trump threatened to destroy it if attacked.

Meanwhile, Germany, the biggest economy in Europe, is set to hold national elections in which conservative Chancellor Angela Merkel looks set to win.

French cosmetics giant L‘Oreal (OREP.PA) was a notable gainer. It rose as much as 6.7 per cent on speculation about ownership changes after billionaire Liliane Bettencourt, whose family founded the firm and still owns the largest stake in it, died. Traders said her death could fuel talk of Nestle (NESN.S) selling its stake in L‘Oreal, which in turn might look at selling its holding in Sanofi (SASY.PA). Sanofi edged up 0.3 per cent while Nestle reversed earlier gains to end 0.2 per cent lower.

The pan-European STOXX 600 index closed 0.1 per cent higher. Britain’s FTSE 100 .FTSE outperformed with a 0.6 per cent gain, buoyed by a fall in sterling following a closely-watched speech on Brexit by Prime Minister Theresa May.

Miners .SXPP were among the biggest sectoral fallers, down 0.2 per cent, as tensions rose over the Korean peninsula and a rating downgrade on China hit metal prices.

“The North Korean impact isn’t always a major sell-off, sometimes it’s a lack (of) bullish sentiment,”

David Madden, market analyst at CMC Markets UK, said.

Germany’s blue chip DAX index .GDAXI was little changed, holding close to a two-month high on the last trading day. The DAX has outperformed euro zone peers over the past four years to hit a record high in June. There are expectations that the country’s equities could get further boost in case Merkel wins – which is almost certain. But some German stocks, especially industrials like carmakers, may be too highly valued and could be hit by any correction in key export market China on the back of a growing pile of debt.

“The risks in a lot of the German companies are being under-appreciated,”

Luiz Sauerbronn, at global investment advisory firm Brandes Investment Partners, said.

He was more optimistic about European equities as a whole given attractive relative valuations versus the U.S., and saw opportunities in British grocers or European oil companies.

Among German blue chips, Deutsche Boerse (DB1Gn.DE) dropped more than 4 per cent after the country’s financial regulator took a critical view of a settlement between the exchange and Frankfurt prosecutors in an insider trading case.

British engineer Smiths Group Plc. (SMIN.L) fell 6 per cent after full-year revenue growth fell short of analyst expectations.

Paul

The author Paul