Growing demand for megacap stocks that tap global secular growth trends has catapulted European shares to fresh highs, although some say their star may wane as investors seek value elsewhere.
Obesity drug superstar Novo Nordisk, AI-darling ASML and luxury giant LVMH have been pivotal in Europe’s post-pandemic STOXX 600 ascent, just as smaller, less-liquid stocks have struggled to lure funds.
The 12%-26% gain in their shares so far this year has boosted their relative weighting yet further. Together, the megacaps now make up 12% of the $11 trillion index, compared to their 2.7% weighting a decade ago, LSEG Datastream data shows.
The rise in popularity of Europe’s stock market leaders contrasts with underlying economic weakness. Germany is in recession and fund managers are wary of tariffs on European imports should Donald Trump become U.S. President again.
“While the European economy faces headwinds on several fronts… many of the largest stocks in the index are globally facing and benefit from far broader trends,” said Lindsay James, strategist at British wealth manager Quilter in London.
The export-oriented nature of many European-listed companies has also helped shield local benchmarks from economic weakness, while rising military spending in the wake of Russia’s invasion of Ukraine has lifted defense stocks.
Other standouts in Europe this year include sportscar Ferrari and Germany arms maker Rheinmetall.
The STOXX was last up 1% on Thursday, after surging as high as 495.81 points to breach the previous peak in January 2022, bringing year-to-date gains for the index to 3.6%.
Helped by continued U.S. economic strength, the latest uplift for European equities came after blockbuster numbers from chipmaker Nvidia validated bets that Wall Street’s artificial intelligence-driven rally has room to go.
That reverberated across markets in different geographies.
“The share rally is a global phenomenon, but Europe is part of it,” said Samy Chaar, chief economist at Swiss private bank Lombard Odier in Geneva.
“When you think about the improvement in the growth picture … it’s not like we’ve got the situation last year with U.S. exceptionalism and the rest doing poorly. We are seeing a bottoming process everywhere,” he added.
A survey on Thursday showed the downturn in euro zone business activity eased in February as the dominant services sector broke a six-month streak of contraction and offset a deterioration in manufacturing.
The STOXX 600 equal-weighted index has lagged the benchmark in recent years, another illustration of investor preference for larger stocks. The index is up barely 1% over the past three years, a 17 percentage point underperformance.
Some expect that concentration to ease, which could pose a risk for the more highly crowded megacaps.
“I would expect that rally to broaden … and people may come out of the bigger cap stocks to fund that,” said James Rutland, equities fund manager at Invesco.
“That’s where I see the opportunity; when I look at tech or luxury, they still look quite elevated relative to history.”
Morgan Stanley says Novo Nordisk and ASML are the two most over-owned stocks in Europe by global funds. Aerospace and defense is the most crowded by sector, with allocations four times the benchmark.
Data from securities lending firm Hazeltree, however, show that investors betting on a drop in prices have favored the shares in smaller companies to do so.
In 2023, stocks borrowed for shorting purposes were 11% for large caps, versus 39% for small firms.
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
