Power stocks raced up the performance charts on a day ridden with takeover rumours due to the collapse of Endesa's planned merger with rival Spanish utility Iberdrola. Iberdrola, now seen by the market as back in play, shot ahead in massive trading volumes amid talk that a clutch of sector leaders were queuing up to bid for the company. The best bets for potential suitors were Germany's RWE and Gas Natural of France. The latter already has a significant "local connection" through big shareholder Repsol, the Spanish oil group which owns 45 per cent.
Iberdrola ended the session 11.1 per cent higher at €16.22 with 42.5 million shares changing hands. Endesa, also well dealt, gained 2.8 per cent at €19.73. The takeover excitement was enhanced by news of a near €3 billion counterbid by RWE for Cantabrico, a smaller Spanish group already under siege from two sources. RWE fell 2.2 per cent to €41.55.
The outlook for the banking sector remained under scrutiny. Deutsche Bank's pan-European banking team said the speed with which the market responded to falling interest rates in January had raised concerns. "Although confidence that the US economy will experience a v-shaped recovery is growing, we believe there is still potential for further credit accidents. Economies such as Latin America remain vulnerable to shocks and, year-on-year, earnings growth will be difficult for many European banks to maintain."
On balance, Deutsche Bank holds that investment banks, asset gatherers and emerging markets will continue to outperform in 2001, driven by falling rates and a steepening yield curve. By contrast, the more highly rated retail banks may struggle to sustain earnings momentum, given less buoyant operating conditions.
In the biotech sector, France's Genset soared 16 per cent to €58.25 on news that pre-clinical tests had demonstrated the effectiveness of its anti-obesity drug Famoxin. Genset plans to begin human clinical trials at the end of the year.
