European Stocks Help Global Rally Continue in March
Dr. Jan-Carl Plagge, Head of Applied Research
Investors buy European equities amid economic optimism and as concern that populist parties will win elections eases.
Global equities in March built on their recent advance, with European shares posting strong gains amid positive economic and political developments in the region.
The STOXX® Global 1800 Index rose 0.4% in euros for the month1, taking its advance in the past twelve months to 21.9%. The STOXX® Europe 600 Index added 3.3%, while the STOXX® USA 900 Index, measured in dollars, was flat. The EURO STOXX® 50 Index of companies in the Eurozone rallied 5.7%.
Investors have stepped up purchases of equities since Donald Trump’s victory in the Nov. 8 U.S. elections on expectations he will pursue reflationary and growth-friendly policies such as tax cuts and increased government spending.
Optimism is spilling over to Europe, where signs have emerged that the economy is gathering strength after years of slow progress. A reading of Eurozone manufacturing and services activity unexpectedly rose in March, pointing the highest result since April 2011. The survey also showed the fastest employment growth for almost a decade among respondents, amid surging order books.
Dutch and French elections
In the Netherlands, Prime Minister Mark Rutte’s center-right VVD party beat the anti-European Union, anti-immigration Party for Freedom (PVV) in parliamentary elections on March 15. French polls showed liberal candidate Emmanuel Macron taking over National Front’s Marine Le Pen in vote intention during the month. Mrs. Le Pen has said France should drop the euro and impose a centralized economy and trade restrictions that go against European Union principles.
Index of the month
Benchmarks for Eurozone bank stocks led gains among the entire STOXX universe in March, with the EURO STOXX® Optimised Banks Index ranking at the top after a 12.4% increase. The index is part of the STOXX Optimised family, where components are weighted based on market capitalization and turnover factors to enhance the overall liquidity of the index.
Investors have reportedly bought shares of Eurozone banks as the companies are exposed to the economic recovery, and on expectations the European Central Bank will not rush to raise interest rates in the near term.
Much of that same optimism also drove money flows to Southern European national indices, with the STOXX® Spain Total Market Index, STOXX® Italy Total Market Index and STOXX® Portugal Total Market Index leading worldwide gains in March. The benchmarks added between 7.5% and 9.9% each.
Amid a surge in investor optimism, volatility in European equities has sunk. The EURO STOXX 50® Volatility Index, or VSTOXX®, last month touched historical lows.
The STOXX® Global 1800 Technology Index climbed 2.5% in the month to lead gains among 19 sectors.
U.S. technology shares have benefitted from stronger earnings, compelling valuations, and demand for innovative products, according to Dr. Jan-Carl Plagge, Head of Applied Research at STOXX Ltd. Also underpinning the sector are rising interest rates and Trump’s proposed corporate tax reform, which could allow companies to repatriate cash at lower rates, Plagge said.
The STOXX® Global 1800 Construction & Materials Index and the STOXX® Global 1800 Personal & Household Goods Index followed as best-performing sectors, with respective advances in the month of 2.1% and 2%.
At the other end, the STOXX® Global 1800 Basic Resources Index was the worst performer for a second month in a row with a 2.3% decline. Still, the index has gained 47.8% in the past 12 months amid a recovery in metals and other commodities.
1 All performance figures are net of dividends.