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Europe's main stock markets are moving at three speeds. Macroeconomics is one of the suspects
In addition to the macroeconomy, the performance of the stock markets was also affected by the political and social climate, sectoral factors, monetary policies and the exposure of the indices to local economies, according to the experts consulted by Jornal Económico.
By the end of October, the Portuguese stock markets and some of the main European stock markets could be put on a three-speed train. At the head of the pack are Spain and Germany, which saw the IBEX 35 and DAX, respectively, rise by 14.8% and 14.3%. In the middle of the pack was the United Kingdom, with the FTSE 100 rising by 4.6%. Bringing up the rear is Portugal, which saw the PSI rise by 1.1% while France's CAC 40 fell by 2.1%.
The reasons for these different speeds on the various European stock exchanges are different, according to the experts consulted by Jornal Económico. This includes factors such as the macroeconomy, the evolution or otherwise of political and social conditions, sectoral factors depending on the area of activity to which the companies listed on the stock exchanges belong, monetary policies, and the exposure that the indices have to local economies.
Ângelo Custódio, a trader at Banco Best, believes that one of the "truly relevant” factors in the performance of the various European stock exchanges lies in their exposure to the economy itself.
"While only 18% of the index companies' revenues are generated in Germany, partly accompanied by the Spanish IBEX, markets such as the French, or even the national PSI, generate a good part of their revenues in their own economy, limiting their gains and increasing their exposure to internal weaknesses, thus slimming down the results of listed companies,” explains the Banco Best trader to the Jornal Económico.
Ângelo Custódio stresses that in the end it is the performance of the companies that "determines” the performance of the various stock market indices and that "those with greater exposure to sectors that diversify their sources of income geographically and invest in innovation will resist better”.
Vítor Madeira, an analyst at brokerage firm XTB, told Jornal Económico that the rise or fall of the various stock market indices (Spain, Germany, the UK, Portugal and France) "do not include” the dividends paid out, which means that the percentages assumed "do not represent” the reality of the gross returns obtained by investors, especially in the case of the PSI, where the dividend yield "is quite high” in the index's performance in terms of returns.
The head of trading at Banco Carregosa, João Queiroz, believes that the performance of the main European indices until the end of October 2024 reveals some "significant divergences”, which can be explained by macroeconomic, sectoral and local market-specific factors.
"The differences in the performance of these indices reflect a combination of sectoral factors, such as exposure to the financial and energy sectors, and macroeconomic factors, including the restrictive monetary policies of the European Central Bank (ECB) and the impact of global consumer conditions,” adds João Queiroz.
The Banco Best trader points out that the economies of the various countries operate with different "engines”, even if they are part of economic unions. Ângelo Custódio points out the difference in performance between the German index, which has grown this year, and the French index, which has fallen.
"If the German market is concentrated in three sectors (industry, technology and finance) currently in a positive momentum, contributing decisively to the performance of the index, the CAC 40 (France) remains polarized, hampered by its strong exposure to the luxury goods sector, which has been losing ground due to the slowdown in the Chinese market, largely reducing the revenues of companies linked to "luxury” and reversing its trend of consistent gains after the pandemic,” explains Ângelo Custódio.
Macroeconomics affected France and the UK
"In the case of countries like France and the UK, the worsening macroeconomic conditions have contributed to lower growth for companies, which has been reflected in asset prices. In addition, these countries have also had political and social complications that have worsened the functioning of the fiscal and social budget, and the market is already anticipating these negative effects,” says XTB analyst Vítor Madeira, on the stock market performance of the French and UK indices.
Referring to France, the head of trading at Banco Carregosa, João Queiroz, points out that the French stock market index had "marginal growth”, influenced by the fall of large companies such as LVMH and L'Oréal , which felt the impact of a "slowdown” in demand for luxury goods, especially in China, a "crucial market” for these brands.
"Rising interest rates and global economic uncertainty also affected the slower growth rates of consumption and spending, which impacted consumer goods and industrial companies. The financial and banking sector had some positive performance, but it wasn't enough to offset the losses in other sectors,” adds Banco Carregosa's head of trading.
As far as the UK's FTSE 100 is concerned, it ended up being sustained by natural resources companies and financial institutions such as Barclays and NatWest, said João Queiroz.
"The index's exposure to commodities helped mitigate the impact of higher interest rates, as the energy sector benefited from the volatility in crude oil and gas prices. However, the index was also hurt by sectors that are more vulnerable to global economic conditions, such as consumer discretionary and technology,” said João Queiroz.
Germany and Spain lead European stock market gains
With regard to Germany, Vítor Madeira points out that this is a "curious” case. The XTB analyst says that although the economy has been "weaker” than in the past, the stock market index has managed to rise.
This rise is justified by the XTB analyst due to the following factors: "The market is showing positive future expectations in relation to the growth of company revenues and profits; the large DAX companies have not been affected as much as the rest of the economy, which has kept growth levels to a minimum for most of them; the German index has a high correlation with the main US indices, so there may be some appreciation as a result of the great American performance,” explains Vítor Madeira.
With regard to the Spanish IBEX 35 index, Vítor Madeira points out that there is "no direct relationship” between macroeconomic data and its performance.
"Even so, a bit like in Germany, the big Spanish companies managed to maintain their performance, even in a situation of economic slowdown. The Spanish banks and Inditex stand out,” says the XTB analyst.
"The IBEX was boosted by the banking sector, with companies such as Banco de Sabadell and CaixaBank benefiting from the less restrictive monetary policies and stabilization of financial margins, which contributed to their profit margins. In addition, the IBEX's exposure to the tourism and hospitality sector provided a good performance, as the recovery in tourism benefited companies such as International Airlines Group (IAG),” explains Banco Carregosa's head of trading, João Queiroz.
In the case of the DAX (Germany), Siemens Energy led the way with growth of 212.75%, reflecting "strong demand” for energy technology and sustainable infrastructure, sectors that "have gained relevance with the increase in environmental concerns and the energy transition” in Europe.
"However, the overall performance of the index was limited by sharp falls in major companies such as EDP Renováveis and Mota Engil, both affected by pressures in the energy sector, volatility in the infrastructure sector and high medium- and long-term interest rates. In addition, the slow reduction in interest rates by the European Central Bank (ECB), given the pace of growth observed, had a negative impact on the real estate and utilities sectors, which have a significant weight in the index,” explains João Queiroz.
João Queiroz also said, now referring to the performance of the different European stock market indices, that they ended up having "varied performances” influenced by macroeconomic and sectoral factors.
"The rise in sovereign debt yields will have had an impact on indices such as the PSI (Portugal) and the CAC 40 (France), where sectors sensitive to the cost of financing, such as utilities and real estate, had some weight,” explains João Queiroz.
In October, says João Queiroz, the scenario of global economic stagnation and geopolitical concerns also "affected more intensely” indices with greater weight in utilities (in the PSI (Portugal) with both EDP's continuing to "underperform” in the face of high yields in the United States) and energy, such as the PSI and the CAC (France), while the IBEX (Spain) and the DAX (Germany) "were less affected”.