2024 European Stock Index Market Analysis: Investment Opportunities and Risks Coexist

European Stock Index Performance Shines Brightly — Four Major Factors Driving the Rally

Since the beginning of 2024, European stock markets have performed remarkably. The German DAX index has risen nearly 10%, the French CAC 40 increased by 8.29%, and the STOXX 600 index, covering 90% of listed companies in Europe, has gained over 7%. The STOXX 600’s first-quarter gains set a new historical high.

This wave of market performance is no coincidence. In Q4 of last year, funds focused on European stocks attracted €45.7 billion in inflows, with an annualized growth rate exceeding 45%. A US bank survey also reflected that professional investors continued to net buy European stocks in February 2024.

The main reasons attracting capital inflows are fourfold: First, the relatively cheap valuation of European stocks — forward P/E ratio of only 14 times, far below the S&P 500’s 19 times; second, Europe’s inflation continues to ease, laying the foundation for the European Central Bank to cut interest rates; third, market expectations of rate cuts stimulate capital inflows; fourth, the outlook for corporate earnings recovery remains optimistic.

Long-term Trajectory of European Stock Indices from a Historical Perspective

Using the STOXX 600 index as the vertical axis, reviewing the past 30 years of European stocks reveals how this index, representing 600 leading companies, has experienced ups and downs.

1990s Prosperity and Shocks: Under the combined effects of economic growth, deregulation, and the establishment of the European Union, European stocks enjoyed a golden era. However, the Asian financial crisis in 1997 and the Russian financial crisis in 1998 dealt significant blows.

Internet Bubble Era: At the turn of the millennium, the US Dot-Com bubble affected global markets, including Europe, with many emerging tech companies’ valuations soaring unrealistically. The sharp corrections in 2000-2001 were inevitable.

Post-9/11 Recovery: The 2001 9/11 attacks severely impacted global capital markets, but European stocks soon entered a prolonged recovery phase. International trade surged, emerging economies joined the WTO, and central banks implemented low-interest policies, leading to impressive performance across major markets.

Financial Crisis and Sovereign Debt Crisis: The 2008 global financial crisis hit European stocks hard, with Lehman Brothers’ bankruptcy triggering credit tightening and severe economic recession. Subsequently, high public debt levels in Greece, Ireland, Portugal, Spain, and Italy sparked a sovereign debt crisis, deepening investor concerns about the Eurozone.

Quantitative Easing and Stabilization Period: Quantitative easing measures by the European Central Bank and other institutions effectively stabilized markets. European stocks entered a recovery phase and continued to repair over the following years.

Pandemic Shock and Rapid Rebound: The COVID-19 pandemic in 2020 caused a short-term plunge in European stocks, but ECB and national governments responded swiftly by expanding asset purchases and increasing fiscal support, leading to a rapid bottoming out and rebound.

Who Are the Winners in 2024? Analysis of Three Major Sectors and Representative Stocks

Reviewing the performance of various sectors in 2023, information technology, consumer discretionary, and industrial production performed the best and warrant close attention.

Industrial Production: Boeing’s Troubles Make It an Airborne Dominator

The European industrial production sector covers aerospace, manufacturing, construction, and more, with leading companies like Siemens, ABB, and Volkswagen. Airbus has benefited from frequent faults in Boeing aircraft, causing its stock price to rise accordingly.

However, investors should be cautious: Airbus’s P/E ratio has reached a five-year high of 35.60, requiring the company to deliver substantial business growth to justify this valuation. On the technical side, support levels are around €136. If the stock experiences a correction, balanced volume (higher volume during rallies, lower during declines) will favor short-term trends. The RSI indicator has exceeded 70, indicating increasing pressure for a price correction, so investors should monitor closely.

Information Technology: Correction Risks Behind High Valuations

European IT stocks rose 19% last year, with SAP, ASML, and Capgemini leading global innovation. For example, SAP has broken through the upper limit of its medium- to long-term upward trend channel, signaling an acceleration of the upward momentum. Support during correction is around €121.

However, there are fundamental concerns: SAP’s P/E ratio is as high as 56.39, with only one quarter over the current level in the past 10 years, implying downward pressure on the stock price. The RSI shows negative divergence with the price, indicating short-term correction risks should not be ignored.

Consumer Discretionary: Countertrend Performance Amid China Market Drag

Luxury brands like LVMH, Ferrari, and L’Oréal support this sector. Pandora, for example, despite weak performance in China, achieved a 6% YoY increase in global revenue in 2023, with organic growth of 8%, surpassing market expectations. Its stock price also surged by over 90%.

From a technical perspective, Pandora is in an upward trend, testing the resistance at 1160 kroner. A breakout would be a positive signal. However, the strong rally has increased short-term correction pressure, so investors should wait patiently for better entry points.

Three Investment Paths for European Stocks

For Taiwanese investors, there are multiple options to invest in European indices:

Direct Purchase of European Stocks: Placing orders through brokers supporting European stocks allows flexible use of market orders, limit orders, stop-loss orders, etc., providing full ownership and voting rights. The downside is potentially higher transaction and platform fees, and limited leverage.

Indirect Participation via ETFs: Suitable for investors wanting exposure to indices while concerned about fees. Major European stock ETFs include Vanguard FTSE Europe (VGK, expense ratio 0.09%), iShares MSCI EMU (EZU, 0.49%), and iShares Core MSCI Europe (IEUR, 0.09%), with relatively low costs.

CFD Trading: Using margin trading to amplify returns, supporting both long and short positions, allowing investors to buy on expected rises or sell short on expected declines. This method offers high leverage and flexibility but also increases risk.

What Are the Outlooks for European Stock Indices in 2024? Opportunities Outweigh Risks

Positive Factors: Europe’s inflation pressure has been effectively alleviated, with inflation dropping to 2.6% in February 2024, down for three consecutive months. Major investment banks forecast that European companies will deliver better-than-expected earnings growth, with Citi estimating a 3% EPS increase and Goldman Sachs expecting 7% profit growth. Cheaper valuations compared to US stocks make European stocks more attractive.

Risks: The gradual withdrawal of easing policies may suppress growth in energy, logistics, and industrial sectors. The Eurozone’s economic growth rate is revised down from 1% to 0.5%, and macroeconomic weakness could exert downward pressure. Ongoing escalation of the Russia-Ukraine conflict continues to pose geopolitical risks.

Overall, given the manageable and predictable risks, the European Central Bank’s rate cut expectations and the overall valuation advantage of European stocks will continue to attract capital inflows. During the remaining months of 2024, trading opportunities in European stocks are worth ongoing attention.

Conclusion

European stock markets consist of various national capital markets, each with unique features. However, as a relatively high-economic freedom community, their secondary markets exhibit similar characteristics. These markets have also experienced mergers and acquisitions during their development. Viewing European stocks from a holistic perspective enables accurate grasp of the market’s development trends and investment opportunities.