Analysts flagged China's slowdown as a key risk to second quarter earnings season in Europe, as markets await numbers from U.S. bellweather Alcoa.
"We have however already started to see the usual pre-earnings lowering of expectations and this can artificially inflate earnings," Joshua Raymond, a chief market strategist at City Index, told CNBC.
On Monday, the Shanghai Composite fell 2.4 percent on the news that Beijing will no longer extend credit to sectors struggling with overcapacity. Markets – and corporate earnings – remain vulnerable to liquidity drying up in China, particularly at a time when the U.S. looks set to start unwinding its monetary stimulus program. The Shanghai Composite is currently down 13 percent year-to-date.
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Commodity producers are particularly at risk from a slowdown in the world's second biggest economy, especially given the recent fall in commodity prices. "It would not be a surprise to see mining companies announce new, or extending, cost-cutting measures to help support contracting margins," said Raymond. He added that investors should steer clear of companies with heavy exposure to China.
Ishaq Siddiqi a market strategist at ETX Capital, said miners such as Anglo American, Rio Tinto and BHP Billiton could suffer greatly as a results of China's slowdown, which would smack production and raise capital expenditure.
(Read More: China Stocks Sink 2.4% on Growth Concerns)