Markets
Is Brexit the First of Many Dominoes? [Chart]
Is Brexit the First of Many Dominoes? [Chart]
UK and the Rest of Europe Brace for an Uncertain Future
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Markets have been turned upside down by a surprise Brexit result and the resignation of David Cameron. While there is looming uncertainty around how this will affect the United Kingdom and Europe from an economic perspective, it might be just the tip of the iceberg in terms of long-run consequences.
A Brexit opens the door for future events that would be previously unfathomable by popular opinion, and it gives vital ammunition to groups that are seeking their own referendums for independence.
Unwilling Passengers?
As the UK ship distances itself from European docks, there are two passengers that may have been more comfortable remaining on shore.
While England and Wales voted to “Leave” with 53.4% and 52.5% respectively, Scotland and Northern Ireland were both firmly in “Remain” territory. Scotland, which previously held its own independence referendum in 2014, voted overwhelmingly to have the UK remain in the EU with a 62% vote. Northern Ireland had a similar sentiment with 55.8% voting “Remain”.
Scotland’s First Minister, Nicola Sturgeon, said today that a second independence referendum for Scotland is “highly likely”. She feels Scotland was taken out of the EU against its own will, and that Scottish independence is worth revisiting.
Meanwhile, Northern Ireland has echoed these calls, instead potentially looking at voting on a united Ireland. Northern Ireland is the only country in the UK that shares a land border with a country in the EU.
Other Dominoes
The Brexit result has energized other populist movements across the European Union. Anti-immigration leaders such as Geert Wilders and Marine Le Pen have ratcheted up cries for their own independence votes:
Hurrah for the British! Now it is our turn. Time for a Dutch referendum! #ByeByeEUhttps://t.co/kXZ0aQtgmx
— Geert Wilders (@geertwilderspvv) June 24, 2016
Victoire de la liberté ! Comme je le demande depuis des années, il faut maintenant le même référendum en France et dans les pays de l'UE MLP
— Marine Le Pen (@MLP_officiel) June 24, 2016
However, it is not just people on the fringe that are interested in revisiting EU membership. Even before the Brexit result, a poll by Ipsos Mori showed that the majority of people in France in Italy want to at least have a referendum on leaving:
Who else wants out? #uhoh pic.twitter.com/UwDESY3wQx
— ian bremmer (@ianbremmer) June 24, 2016
Meanwhile, over 40% of Swedes, Poles, and Belgians are in the same boat.
Now that Brexit is a thing, will these numbers trend higher? What will be the next domino to fall?
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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