By Adria Cimino and Adam Haigh

May 6 (Bloomberg) — Europe’s biggest fund managers say the highest volatility since July makes investing in the region too dangerous even as shares are trading at a 13 percent discount to global stocks.

“We’re not buyers,” said Romain Boscher, head of equities at Groupama Asset Management in Paris, which oversees $120 billion. “If you have a one-year vision, it’s time to buy, but if your vision is one month, it’s too early. Volatility will remain very strong. The market risks reaching lower points.”

Groupama, Semper Constantia Privatbank AG and Swisscanto Asset Management AG are passing up stocks valued at 11.5 times analysts’ forecasts for earnings over the next year, compared with a ratio of 13.2 for the MSCI World Index. More than $430 billion was erased from European markets in the past three days as concern Greece’s credit crisis will spread pushed the VStoxx Index of options to protect against losses in the Euro Stoxx 50 Index up 28 percent to its highest in a year.

MSCI’s global equities gauge erased its gain for 2010 yesterday and three people were killed in Greek demonstrations against government austerity measures after protesters set fire to an Athens bank. Moody’s Investors Service said it may cut Portugal’s credit rating for the first time. The euro plunged to a 14-month low against the dollar today.

The Stoxx Europe 600 Index slipped 1.5 percent today, falling to a two-month low. Spain’s IBEX 35 lost 2.9 percent, while Italy’s FTSE MIB Index slumped 4.3 percent to its lowest since July.

Systemic Risk

“The systemic risk is too high,” said Philipp Musil, who helps oversee $10 billion at Semper Constantia in Vienna. “The sentiment has changed from buy the dips to a problem of confidence.”

Equities plunged even as companies from Paris-based Societe Generale SA to Allianz SE in Munich and Leuven, Belgium-based Anheuser-Busch InBev NV reported profit that beat the average analyst estimate. European earnings are headed for the most positive surprises since at least 1997, according to ING Groep NV in Amsterdam.

“Our models and calculations say we normally should invest at this point,” Musil said. “Valuations are nice and first- quarter earnings have been tremendously good. On the other hand, we have the sovereign debt problem. This problem is too big.”

The VStoxx rose as much as 14.4 percent to 38.05 today. The Euro Stoxx 50 fell 2.5 percent to 2,611.41, after falling 1.1 percent yesterday, as 2.54 billion shares changed hands, twice the average for the year.

Downside Volume

“For the past few days, we’ve had large volumes in the decline,” said Alexandre Le Drogoff, an analyst at Aurel Bgc in Paris. “That shows that the bears are controlling the market.”

Losses in the last two days offer a chance to invest in companies that are growing the fastest, said Mislav Matejka, head of European equity strategy at JPMorgan Cazenove in London.

“The positive drivers for stocks are still tracking,” he wrote in a May 4 note. “We advise adding to stocks on dips, favoring cyclical sectors, EPS momentum and operating leverage,” he said. Matejka told clients to buy stocks in March 2009, before the biggest rally in seven decades.

Concerns about credit defaults have infected equity markets. The extra yield that investors demand to hold Portuguese and Spanish debt rather than German bonds has soared since Standard & Poor’s cut their credit ratings last week. The premium over bunds rose to 332 basis points for 10-year Portuguese notes and 163 points for Spanish bonds, according to data compiled by Bloomberg.

Florian Esterer, a senior money manager at Zurich-based Swisscanto, isn’t boosting his stock holdings.

“It’s probably too early,” said Esterer, who helps oversee $54 billion and says stocks will eventually recover. “The question is contagion. The risk is still there and is keeping us on the sidelines. We really need to see Portuguese and Spanish bonds stabilizing. If Portugal and Spanish yields keep rising, how do you keep them from falling apart?”

To contact the reporters on this story: Adria Cimino in Paris at Adam Haigh in London at

Last Updated: May 6, 2010 12:33 EDT