European shares dropped sharply on Friday and Germany's stock market, one of the region's best performers since the 2008 financial crisis, fell to a one-year low as concerns mounted over the German and global economies. The DAX, which had soared to a record high of 10,050.98 points in June, closed down by 2.4 percent at 8,788.81 points, its lowest level since October 2013. The pan-European FTSEurofirst 300 index fell 1.6 percent to 1,292.98 points, while the euro zone's bluechip Euro STOXX 50 retreated 1.7 percent to 2,991.50 points.
The recent sell-off has prompted US-based investors to cut their exposure to Europe, according to data from Thomson Reuters Lipper that shows European equities suffering their biggest outflows in two months in the seven days to October 8. A Lipper poll of 109 US-domiciled funds invested in European stocks, which include exchange-traded funds' (ETFs) holdings, shows net outflows of $329 million, the biggest weekly redemptions since mid-August.
The DAX has been hit hard this week by poor data from Germany, Europe's biggest economy, including statistics on Thursday which showed German exports in August had fallen by their largest amount since January 2009. Traders said the International Monetary Fund's decision this week to cut its global growth forecasts and worries about the Ebola virus, which have hit travel stocks, were also weighing on equity markets.
"I don't think there'll be a full-on meltdown, but I think we will be in a bearish market for the next few weeks," said Darren Courtney-Cook, head of trading at Central Markets Investment Management. European technology stocks also underperformed. French telecoms gear maker Alcatel-Lucent fell 4.5 percent after US rival Juniper Networks issued a sales warning, while shares in chipmakers Infineon and STMicroelectronics also slumped after a sales warning from US-based Microchip.
The DAX's decline on Friday pushed it below the 8,900 level which had marked previous low points reached this year, and Courtney-Cook said the index had scope to fall to 7,500 over the next month. Yet in spite of the stock market pullback, with the DAX down by around 8 percent since the start of 2014 and the FTSEurofirst 300 down 2 percent, some investors felt European equities could recover and rally in November and December.
Many fund managers say the poor German economic data could put more pressure on the European Central Bank to take the plunge into quantitative easing (QE), radical measures which could lift stock markets, despite the constraints of its mandate. "I've been taking profits but I would not necessarily run and hide from European equities," said Caroline Vincent, European equities fund manager at Cavendish Asset Management. "The poorer the data gets, the more likely it is that the ECB will do QE."
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