by Amanda Cooper
LONDON, Feb 22 (Reuters) – European stocks are benefiting from enthusiasm over artificial intelligence, with the Stoxx 600 the latest index to hit a record.
The Stoxx 600 thus exceeded its previous record established in 2022 on Thursday, reaching a session high of 496.3 points, the index having gained 3% since the start of the year.
With a capitalization of some 11,000 billion dollars, STOXX covers a universe of 600 European companies and notably includes British, Swiss and Scandinavian stocks.
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Hopes of a rate cut from the European Central Bank and the AI-related rush for risky assets have supported the Stoxx 600 over the past four months, even as growth in the euro zone falters and Germany is expected to slip into recession.
This increase is largely explained by the excellent performance of a handful of stocks, prompting some investors to worry about a concentration of risk in a few stocks.
Market depth is an important factor in the STOXX’s advance, although the index’s best-performing companies are more diversified than the “magnificent seven,” the seven technology companies that have underpinned U.S. stock indexes.
The Danish pharmaceutical company Novo Nordisk gained 66% last year, thanks to its weight loss treatment WeGovy, and became the largest European capitalization, ahead of LVMH.
Ten years ago, the leading European capitalization was Nestlé, followed by drug manufacturers Roche and Novartis.
At the time, these three values represented around 7% of the capitalization of the STOXX 600, which then amounted to around $6.7 trillion, according to LSEG/Datastream data.
Today, the three largest capitalizations – Novo Nordisk, LVMH and the Dutch semiconductor manufacturer ASML – represent 12% of the STOXX capitalization, or $1.35 trillion.
The cosmetics group L’Oréal occupies fifth place, while it was sixth ten years ago, but its share price has soared and the stock now weighs 2.3% of the STOXX, compared to 1% in 2014.
An equally weighted version of the Stoxx 600 has shown virtually zero performance since January, illustrating the importance of the contribution of these four stocks to the index’s rise.
The contribution of large caps to performance is even more marked for the Stoxx 600 than for the S&P 500 over the last two years.
During this period, the S&P 500 gained 15%, compared to 6.2% for the equal-weighted S&P index. This gap reached 6.3 percentage points in November, before the Federal Reserve triggered a rally in risky assets by indicating that it was considering lowering rates.
The STOXX 600 gained around 6% and the equally weighted STOXX lost more than 6% over the period, a difference of almost 12 percentage points.
Historically, STOXX remains inexpensive compared to other major indices. With a price-to-earnings ratio of around 16.5, STOXX is trading at the largest discount to the S&P index on record.
“Europe trades on affordable valuations, and we expect continued revenue growth from GRANOLAS – a name that covers the 11 largest European companies by market capitalization, which are GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi”, summarizes Nathan Sweeney, director of multi-asset investments at Marlborough.
(With the help of Danilo Masoni, French version Corentin Chappron, edited by Sophie Louet)
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