(Bloomberg) -- European equities fell on Tuesday as political uncertainty in France and Germany weighed on sentiment, with traders also bracing for euro-zone inflation data and a US rate decision due tomorrow.
The Stoxx Europe 600 Index ended the session 0.4% lower, declining for a fourth day, with banks, energy stocks and telecoms among the biggest laggards.
Among individual stocks, Bunzl Plc shares dropped after the wholesaler gave a trading update, which flagged a hit from deflation. Universal Music Group NV shares rose after its Virgin unit bought indie music specialist Downtown Music Holdings LLC for $775 million in cash.
It’s a tumultuous period for politics in the euro area’s two largest economies. German Chancelor Olaf Scholz lost a confidence motion Monday, triggering an election that will likely take place on Feb. 23. In France, freshly appointed premier Francois Bayrou must pick a government and quickly piece together a 2025 budget.
European equities this year have underperformed the US, which has benefited from its high concentration of technology stocks. The Stoxx 600 Index is up just 7.2% in 2024 compared with the S&P 500 Index’s 27% gain.
Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia, said that while Europe’s macroeconomic and geopolitical challenges warrant an underweight equity position on a six to 12-month view, there could be opportunities ahead.
“Because of the current extreme negative sentiment and very low valuations, we think a trading opportunity could arise in European equities over the coming months,” Carrier said. “Given current depressed valuations, we would focus building positions in world-leading companies that happen to be listed in Europe and that benefit from and drive structural global trends.”
Europe’s equities have managed to rally into the year-end, with the benchmark up 1% in December as optimism over potential Chinese stimulus measures boosted sectors most-exposed to the Asian nation’s economy, such as makers of luxury goods and autos.
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--With assistance from Sagarika Jaisinghani and Michael Msika.
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