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European equities for the fashionably late

Photo: Shutterstock

Photo: Shutterstock

The equity bill market continues to rage on and its extent is impressive, this has led to several market players taking profits or hedging their bets.

Still, consensus reigns that the equity rally still has steam and missing out of the next lag of the rally while awaiting a possible correction may not be the best of ideas. 

Currently, the Eurozone is the preferred region for equity investment; economic data keeps improving and the political scenario is much clearer than a few quarters ago. With this in mind, I have compiled a series of suggestions for various investment objectives.

The following indices can be accessed through ETFs. Several mutual funds also invest in Eurozone based equity markets.

Diversification, buy the Euro Stoxx 50 Index

Year to date 11.4%

This index is a stock index of the Eurozone stocks designed by STOXX, an index provider owned by Deutsche Borse Group. According to STOXX, its goal is to provide a blue-chip representation of supersector leaders in the Eurozone. As indicated by its name it is made up of fifty of the largest and most liquid stocks.

This index is well suited for investors that want to take a position in the largest companies across the Eurozone. Since this index is well diversified across Eurozone nations, the index also carries its pros and cons. This implies that investors should keep in mind that exposures to Spain and Italy may be more volatile than markets in Germany and France. Having said that Italy and Spain have outperformed their more stable counterparts this year.

Fundamentals, buy the DAX

Year to date 10.47%

The Deutscher Aktienindex is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The DAX measures the performance of the Prime Standard’s 30 largest German companies in terms of order book volume and market capitalization. It is the equivalent of the Dow Jones Industrial Average in the US.

In our opinion, the DAX represents the industrial heart of Europe as the components of the index are often technological leaders in their respective fields. As would be expected from a German stock index, the DAX has a relatively high percentage automakers but also hosts global giants like Deutsche Post DHL and Siemens.

The DAX is suited for the long-term investor that believes in economic fundamentals. Without doubt, the German economy is amongst the most efficient and well run globally.

Reform, buy the CAC 40

Year to date 11.69%

The CAC 40 is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Euronext Paris stock exchange. The CAC 40 is almost exclusively composed of French-domiciled companies, however, over 45% of the listed shares are owned by foreign investors, more than any other main European index.

Optimism surrounds French companies since the election of Emmanuel Macron as French President and his promises of reform. French companies have for too long been shackled by overzealous unions and hindering government support. Add to this an increasing interest rate scenario, driving forward France’s largest banks, and the optimism is understandable.

Wild card, buy the FTSE MIB

Year to date 20.88%

The FTSE MIB is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The index consists of the 40 most-traded stock classes on the exchange.

Italy has been the dark horse of Europe for some time. However, forced reform in the banking sector and surprising economic data is being translated in renewed optimism. This index is the riskiest amongst those suggested but also the best performing this year.

Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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