The performance of various international equity indices in 2024 has been remarkable, with strong double-digit gains across the main US indices, which surpassed expectations at the start of the year. While the US equity market generated significant gains during the course of the year, there was a sharp divergence between the performance of the S&P 500 Index in the US and the Euro Stoxx 50, despite the strong start to the year for European equities.
In fact, the Euro Stoxx 50 had surged by 8.8% in the first four months of 2024, compared to more modest gains of 5.6% registered by the S&P 500 Index until the end of April. However, while the positive momentum of the S&P 500 Index continued throughout the year, the performance of the Euro Stoxx 50 was rather subdued for the rest of the year, and on a year-to-date basis, it is now showing gains of only 5.9%.
Undoubtedly, there are many factors that may have influenced the share price performance of the constituents within each index, but it is evident that the regional exposures of the top constituents within the Euro Stoxx 50 is having a notable impact in the context of heightened concerns on trade tariffs between major economies. Furthermore, given that the Euro Stoxx 50 is an index with less constituents, the share price movements of each company make a more pronounced impact.
Several companies within the Euro Stoxx 50 that performed negatively in recent months have material exposures to China, which impacts their financial performance due to the weakening economic conditions of the region. Furthermore, concerns regarding the impact of trade tariffs are further affecting sentiment towards these companies, thus further suppressing their respective share prices.
The largest constituent of the Euro Stoxx 50 is ASML Holding, a supplier of critical equipment used in the production of semiconductors. The share price of ASML fell sharply on multiple occasions in the past five months and stands around 35% below its peak reached at the start of July. However, the share price of ASML is practically unchanged when compared to the start of the year.
Despite the fact that the global semiconductor industry is booming and many companies within the sector are benefitting from the increased demand brought by artificial intelligence, ASML recently warned that its projected revenue for 2025 is lower than previously anticipated. The semiconductor industry is well-known for its cyclicality due to periods of high demand and others of low demand. Furthermore, the sector is also subject to various trade sanctions amid geopolitical tensions between the US, China and Russia.
The impact of lower sales from Asia was particularly evident in the results of a number of luxury brand companies within the Euro Stoxx 50. For example, Europe’s largest luxury conglomerate LVMH (Louis Vuitton Moët Hennessy), which generates about 30% of its revenues from Asia, registered a decline in revenue from Asia, excluding Japan, in each of the last three quarters. The share price of LVMH fell by over 30% from this year’s peak reached in March, when at the time it was the largest constituent of the index.
Its rival Kering, which includes luxury brands such as Yves Saint Laurent and Gucci, stands as the worst performer within the index as it fell by more than 40% since the start of the year amid a slowdown in sales. Likewise, the cosmetics specialist L’Oréal highlighted that while the underlying market trends remain robust in Europe, North America and emerging markets, the situation in China has become even more challenging. L’Oréal’s share price fell by over 25% this year.
New competition is also emerging in China within the automobile sector, which impacted several European vehicle manufacturers that traditionally had strong business exposure in China, including the Volkswagen Group, Mercedes Benz and BMW. Furthermore, car sales within the EU from these companies and other European peers, such as Stellantis and Renault, were also subdued, as various carmakers in China and Japan are increasing their market share in Europe. In fact, Stellantis ranks among the worst performers within Euro Stoxx 50 as it lost around 40% since the start of the year, despite that its share price had gained over 30% up until mid-March.
Infineon Technologies, a semiconductor firm that generates most of its revenues from the automotive sector also performed poorly and lost nearly 20% since the start of the year as it failed to hold the positive performance it had in May and June. The only positive performing car manufacturer within the Euro Stoxx 50 so far this year is Ferrari, which gained around 30%, but still stands over 10% below the peak of August.
The largest positive performing constituent within the Euro Stoxx 50 is SAP, which develops enterprise software used to manage business operations and customer relations. In October, SAP updated the market with its Q3 results that showed continued growth in revenue and profits. The company also raised its full year outlook for operating profit and free cash flow. In recent days, the share price of SAP reached a new all-time high as the equity gained over 55% since the start of the year.
The top performing equity within the Euro Stoxx 50 so far this year is Unicredit. The share price of the Italian bank extended the gains registered last year as it surged by over 65%. Earlier this month, Unicredit reported the 15th consecutive quarter of profitable growth as the bank continues to benefit from the change in the eurozone interest rate environment since 2022. The other Italian bank, Intesa SanPaolo, also ranks among the top performers as it climbed nearly 50% this year.
Investors ought to continue monitoring the sectoral issues within the consumer discretionary space, with particular attention to developments in China related to competing firms within the car industry, as well as the overall demand for luxury brands. Likewise, trade negotiations between the EU, the US and China are likely to continue fuelling volatility across companies with diversified global exposures, particularly as the US President-elect Donald Trump is expected to impose wide-ranging trade tariffs to boost US manufacturing.
The ongoing geopolitical developments, as well as the changes in the economic landscape due to the economic policies of the new US president, will continue to impact various asset classes not only in Europe but also in other parts of the world.
Jonathan Falzon is research analyst at Rizzo, Farrugia & Co.
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