March 28, 2018 / 8:01 AM / 7 months ago

Defensives in the driving seat as European shares shake off tech tremors

LONDON/MILAN (Reuters) - Defensive stocks won the day in European markets on Wednesday, driving regional benchmarks higher despite heavy losses in the technology sector amid concern over a regulatory crackdown.

FILE PHOTO: The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 21, 2018. REUTERS/Tilman Blasshofer

The pan-regional STOXX 600 index ended the day up 0.5 percent, with consumer staples and healthcare stocks - labeled “defensive” due to their large dividends - driving the market.

Germany's DAX .GDAXI, which is heavier in industrials and autos stocks, was a laggard, down 0.3 percent.

As tech stocks .SX8P dropped, hit by concerns over a regulatory crackdown after allegation against Facebook of privacy breaches, investors reached for the defensive sectors typically favored in times of market stress.

A fall in bond yields also helped defensive sectors outperform.

Europe’s utilities index .SX6P jumped 3.2 percent, its best daily gain in 21 months.

Healthcare stocks .SXDP gained 1.6 percent, led by Shire (SHP.L), which soared 14 percent on news Japan’s largest drugmaker, Takeda Pharmaceutical (4502.T), was considering a bid for the UK company.

Consumer goods giants Nestle (NESN.S), Unilever (ULVR.L) and British American Tobacco (BATS.L) were among the strongest single-stock boosts to the STOXX.

Tremors in tech stocks began in the U.S. and spread to global markets. Europe’s tech sector .SX8P fell 1.8 percent, hitting a near seven-week low, as the Nasdaq dropped with Amazon and Apple shares falling sharply.

Amazon (AMZN.O) fell 5 percent after reports President Donald Trump was looking to target the company by changing its tax treatment.

Tech has been a key driver behind a global equity rally, and investors are concerned that an increase in regulation will spark a further sell-off.

“A recent stream of negative news has acted as a trigger for the sell-off in the U.S. tech sector. But the underlying cause ... is extremely stretched valuation metrics that have generated a sizeable misalignment with fundamentals, mostly for the big technology stocks,” said UniCredit in a note.

On a price-to-earnings basis, European and U.S. technology stocks are valued around their highest level in more than a decade. European tech stocks have fallen 9.5 percent from their peak a the end of 2017, but they remain among the best performers over the past year, up 2.5 percent.

Top fallers among European tech stocks were chipmakers ams (AMS.S), ASML (ASML.AS), STMicro (STM.MI) and Infineon (IFXGn.DE).

Ams fell 10.2 percent, STMicro tumbled 5.9 percent and Infineon dropped 4.8 percent.

“As concerns semiconductors, the fear comes from the environment of bad news that is accumulating around the functioning and testing of autonomous vehicles,” IG analyst Alexandre Baradez said.

Chipmaker Nvidia Corp (NVDA.O) suspended self-driving car tests, a week after an Uber UBER.UL autonomous vehicle struck and killed a woman in Arizona.

Miners .SXPP also suffered heavy losses as metal prices fell, weighed by a rising dollar.

Reporting by Danilo Masoni; Editing by Larry King

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