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Euro STOXX 50 index forecast for 2020

By Elena Berton

Similar to the Dow Jones 30 across the Atlantic, the Euro Stoxx 50 index tracks the euro zone’s prestigious blue-chips and is a bellwether for the health of the single currency economies. Our EURO STOXX 50 index forecast looks at what's in store for 2020

Similar to the Dow Jones 30 in the US, the EURO STOXX 50 index includes the eurozone’s leading blue-chip companies from eleven countries and spans 19 economic sectors.

With Brexit still unfinished and the US presidential election in November, geopolitical uncertainties will influence the financial markets across the Atlantic in 2020.

Investors may want to look at the Euro STOXX 50 index analysis for investment ideas in the eurozone’s largest and most liquid stocks.

Euro STOXX 50 index history

Launched in 1999, the Euro STOXX 50 Index is a market capitalisation-weighted index of the 50 largest companies operating in the euro zone.

Euro STOXX 50 was created to allow investors to make investments based on the global economic health of all countries using the euro, instead of having to track individual European indexes.

The Euro STOXX Index includes large-, mid- and small-cap stocks in euro area countries.

Updated every September, it includes stocks from 11 euro zone countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Because it measures the average performance of large companies, chosen from 19 different economic sectors, it’s considered a barometer of the euro zone health.

The Euro STOXX 50 index is licenced to financial institutions to serve as a reference for a wide range of investment products such as exchange-traded funds (ETFs) – one of investors’ preferred methods to invest in the index – as well as futures, options and structured products worldwide.

The SPDR EURO STOXX 50 ETF is one of the most popular traded funds for investors willing to start trading the Euro STOXX 50 index.

It currently has $2.24bn (€2bn, £1.71bn) in assets under management, with one-year, three-year and five-year market value returns of 26.04 per cent , 9.79 per cent, and 5.05 per cent, respectively.

Euro STOXX 50 index performance

The Euro STOXX index 50 has reported strong growth since its beginning.

At the end of 2000, it crossed the 5,000-point mark to reach 5,464.43, before experiencing its first decline.

It fell below 1,900 points in 2003 and then resumed an upward trend until the end of 2007, when it exceeded 4,500 points.

Since June 2012, the Euro STOXX 50 has been growing almost constantly.

In December last year, the Euro STOXX 50 index advanced 1.2 per cent in the month to achieve a 29 per cent rise in 2019, its best year since total-return data started in 2001.

Excluding dividends, the index posted its best year since 1999, but remains more than 30 per cent below its 2000 all-time high.

According to the Euro STOXX 50 index chart, the one-year return is calculated at 0.59 per cent, while one-year volatility is 11.04 per cent.

Euro STOXX Index year-to-date

The Euro STOXX 50 has decreased 122 points or 3.20 per cent since the beginning of 2020, dragged first by the US drone attack in Iran in early January, which sparked concerns of conflict in the Middle East, and then by the spreading coronavirus outbreak in China.

The fallout of the health emergency has been weighing on global stocks amid concerns it could wreak havoc on the global economy by kickstarting a worldwide recession.

Investors are fretting about the impact of the virus on the Euro STOXX 50 index components, particularly luxury group LVMH, with its heavy exposure to China.

The world’s second-biggest economy has introduced travel bans to try to limit the spread of the contagion.

The French company, which makes the iconic Louis Vuitton monogrammed bags among others, is a firm favourite among Chinese shoppers.

LVMH has seen its stock fall 9 per cent since January 17 despite posting record results earlier this week. Its flagship store on the Champs-Élysées in Paris attracts millions of visitors every year, many of them from China.

Still, even with the recent dip, LVMH shares are up about 60 per cent over the past year.

Asked for his views, LVMH boss Bernard Arnault said it was too early to predict how the virus would evolve. If the outbreak was contained quickly within two and a half months, the effect would be manageable, but if it lasted longer, it would be more serious, he added.

Euro STOXX 50 index forecast in 2020

Looking at longer term forecasts, the index is likely to continue to trade in the current range of 3675 points, analysts say.

The Euro STOXX 50 index is expected to trade at 3709.05 points by the end of this quarter, according to Trading Economics’ global macro models and analysts’ expectations.

Looking forward, it is seen trading at 3589.05 in 12 months’ time, Trading Economics’ Euro Stoxx 50 index technical analysis has shown.

Euro zone economy woes

Given its single currency focus, the Euro STOXX 50 index is also sensitive to macroeconomic news from individual countries and, particularly, the European Central Bank.

Fresh data has shown that growth in the euro zone is almost at a standstill after the French and Italian economies shrank unexpectedly, dashing hopes of a rebound and prompting views that the European Central Bank may loosen its policy further to kickstart growth.

The declines in the second and third largest economies in the eurozone mean growth in the euro zone was just 0.1 per cent in the fourth quarter, missing expectations of 0.2 per cent.

As a result, euro zone growth dipped to a six-year low of 1.2 per cent in 2019.

“The European Central Bank has already announced more easing measures, including a return to asset purchases. The key will be whether individual countries will follow suit in terms of fiscal stimulus. With former IMF chief Christine Lagarde now in charge at the ECB, it will be interesting to see if she tries to persuade governments to do more to promote growth,” said Martin Skanberg, European equities fund manager at Schroders.

“The fact that eurozone shares have been unloved is shown by the significant outflows from the asset class this year. However, there are tentative signs of this starting to improve, with the pace of outflows slowing. Investors returning to the asset class could be an important source of support for shares in 2020,” Skanberg added.

“The European Central Bank has already announced more easing measures, including a return to asset purchases. The key will be whether individual countries will follow suit in terms of fiscal stimulus. With former IMF chief Christine Lagarde now in charge at the ECB, it will be interesting to see if she tries to persuade governments to do more to promote growth,” said Martin Skanberg, European equities fund manager at Schroders.

“The fact that eurozone shares have been unloved is shown by the significant outflows from the asset class this year. However, there are tentative signs of this starting to improve, with the pace of outflows slowing. Investors returning to the asset class could be an important source of support for shares in 2020,” Skanberg added.

Looking at the performance of European stocks, equities were surprisingly buoyant in 2019 against a backdrop of political uncertainty and a slowdown in economic growth.

While the European economy has managed to achieve its seventh consecutive year of growth and is expected to continue expanding in 2020 and 2021, the forecast is for a slower rate, according to the European Commission's autumn forecast.

In fact, the eurozone is one area where investors should increase their exposure in 2020, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

The European stock market is more sensitive to the global economy than the US market, Luschini said, similar to equities in emerging markets.

Because Chinese growth has such a large impact on the world’s economy, even a slight improvement could spill into international markets, Luschini added.

Echoing this bullish view, Barclays has advised to rebalance the equity focus away from the US in favour of Europe and emerging markets in 2020.

In its 2020 outlook, the British bank said it expected European equities to deliver further gains.

Cautioning that the rise is likely to be more moderate than in 2019, Barclays analysts have identified a late-stage business cycle, overbought technicals and normalised valuations as potential risks for European stock performance.

FURTHER READING: Hang Seng index predictions for 2020

FURTHER READING: Nikkei index predictions for 2020 and beyond

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