Stock markets in Europe climbed in the July-September quarter after fears of a debt crisis, which had peaked in May and June, receded and economic growth seemed to be returning.
Interestingly, European markets bottomed out exactly in the first week of July, hitting their lowest point of the year, and have netted handsome returns since.
During the three-month period, the UK's FTSE surged 13.8%, France's CAC climbed 9.1%, while Germany's DAX advanced 4.4%.
Even as governments and central banks pulled out all the stops to prevent the sovereign debt contagion--which had initially started in Greece, Spain, and Ireland--from spreading, the tone for equities was set after the European Central Bank published the results of the so-called stress test results.
The ECB, which also continued to hold interest rates near zero to boost the economy, said most of the 91 regional financial institutions under review passed the stress test. The tests, similar to the one carried out by the United States during the 2008-09 recession, sought to ascertain banks' liquidity levels during the depths of crisis to see if they would withstand a credit crunch.
Also helping sentiment were robust earnings from industry leaders like engineering giant Siemens (SIE), oil major Royal Dutch Shell (RDSB), pharmaceutical company AstraZeneca (AZN), and bank BNP Paribas (BNP).
But the biggest driver of equities remained economic data in Europe, with the 16-nation Eurozone recording 1% growth in April and May, according to data released in August. The EU growth was led by Germany, which grew 2.2% in the second quarter, its highest growth since the country’s reunification 20 years ago.
Unsurprisingly, Greece continued to remain in recession in the face of austerity measures taken by the country in June to rein in its soaring deficits.
Robust economic growth in China and India as well as the US Federal Reserve's monetary policy also helped by providing strong global cues and gains in other markets.
The CBOE VIX, a measure of volatility, continued to fall through the quarter signaling rising appetite for equities globally.
Sectors and Industries
As is usually the case, stocks that had been beaten down during the previous downturn climbed the fastest. In the second quarter, the biggest gainers included banks and miners, with the former helped by strong returns and the latter by rising metal prices in the commodities market.
In the three-month period, Barclays (BARC), Lloyds Banking (LLOY), Royal Bank of Scotland (RBS) and Societe Generale (GLE) added 19%, 46%, 22%, and 39.5%, while miners BHP Billiton (BHP), Rio Tinto (RIO), and Xstrata (XTA) rose 24.6%, 35.7%, and 39%, respectively.
Banks and miners were the worst-hit during the April-June correction, and several analysts said valuations had been beaten below fundamentals, prompting a flurry of bargain-hunting in these stocks. But one of the biggest gainers in the region was embattled oil explorer BP (BP.), whose oil rig explosion in the Gulf of Mexico had sent its shares tumbling in April and May. Since July, shares in BP, which has not only replaced its CEO and shaken up management but also mounted massive efforts to finally plug the leaking well at the bottom of the sea, advanced 43%.
Automakers BMW (BMW), Audi (NSU) and Volkswagen (VOW) added between 9% and 27% after global economic sentiment improved, signalling improving fortunes, even as emerging economies like China and India continued to rack up new records in sales.
