Dismal performance of the European stock markets since year 2000

joe sod

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This question is sparked by another startling revelation in another recent thread comparing the euro stoxx 50 index to another investment product. However what was overlooked in this discussion was the absolutely dismal performance of the euro stoxx 50 index itself which declined by an average of 1.87 percent from 2001 til 2017. You would think that investing in the 50 biggest stocks in Europe in 2001 would have been a fairly safe bet, even if they might have been relatively expensive then you would think that after even a decade you should have been in the black again.
I just want to emphasize that these were the 50 biggest stocks in Europe, not dot com rubbish basically big Europe, even the German exporting miracle during that period when it exported all those cars and heavy industrial equipment to the world is not represented.
What's even more mysterious is why so little attention is focussed on this, is it the case that Europe is really in decline industrially and if it is surely this should be the top priority of the eu, but it's definitely not.
 

cremeegg

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Thank you for starting this thread.

Two points I would make. The period from 1996 to 2000 saw an extraordinary rise in prices. Nevertheless the price in 2000 was the only price available to investors then.

The second point is that the figures you quote AFAIK don't reflect transaction costs. The index tracks the 50 biggest shares. So when an individual company falters it is ejected from the index and a new rising company takes its place. Any real world investor or fund would have transaction costs to keep on index. These are not reflected in the index.

The performance of the FTSE 100 has been better, but not much.

The Dow Jones was at 16,000 in 2000 a level it reached again in 2007 and again in 2013, (having been lower in the intervals) since them it has moved strongly ahead to 26,000. So for 13 of the 20 years it was as bad as European indices.

Inflation obviously would reduce the value of these returns.
 
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Duke of Marmalade

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Of course this is a Price only index. If one invested in the actual stocks one would earn dividends. Even so after tax and the expenses cremeegg has referred to such an investment strategy would scarcely be above water after nearly 20 years and after inflation would be under water.
 

Marc

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I’ve alluded to this in my recent guide covering Brexit and investors concerns.


The yield on some UK stocks is now over 7%

Investors need to be careful not to confuse “the market is expensive” with really a few US tech stocks have accounted for nearly all the growth in global markets in recent years.
 

joe sod

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@cremeegg with regard to the big rise in price of European stocks from 1996 to 2000, that was more or less worldwide, the American markets rose much more in that period and has been pointed out they have almost doubled again since 2001. Also does this not point to something else ? During that period was the tech boom, and Europe was at the races then in terms of technology. Big names like Olivetti computers, amd microprocessors, Phillips etc are shadows of their former selves or are gone completely.
Europe seems to have capitulated in terms of technology and is now really far behind. Even in car manufacturing where the Germans were strong they are falling behind because the Japanese and Koreans are now the leaders in electric cars.
Maybe this also explains why quantitative easing has failed in Europe, firstly they are not spending but when they are it is on consumer goods not produced in Europe but in Asia.
Yet the European union is not focusing on this at all, the decline of Italian industrial output in the last 2 decades is striking. Surely at this stage Europe actually needs some protectionism in important areas like technology . But the lack of discussion about this topic at eu level is frightening
 

PMU

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This question is sparked by another startling revelation in another recent thread comparing the euro stoxx 50 index to another investment product. However what was overlooked in this discussion was the absolutely dismal performance of the euro stoxx 50 index itself which declined by an average of 1.87 percent from 2001 til 2017. You would think that investing in the 50 biggest stocks in Europe in 2001 would have been a fairly safe bet, even if they might have been relatively expensive then you would think that after even a decade you should have been in the black again.
I just want to emphasize that these were the 50 biggest stocks in Europe, not dot com rubbish basically big Europe, even the German exporting miracle during that period when it exported all those cars and heavy industrial equipment to the world is not represented.
What's even more mysterious is why so little attention is focussed on this, is it the case that Europe is really in decline industrially and if it is surely this should be the top priority of the eu, but it's definitely not.
Is this not just the risk you take for investing in eurozone equities? Or rather the risk you should be aware of if you invest in eurozone equities? I made a previous post on the risks for pensioners investing lump sums in equities on retirement and on how long it can take for markets to recover. https://askaboutmoney.com/threads/should-the-elderly-be-less-conservative-investors.156555/page-2#post-1518084. If you were unlucky to make an investment in the Eurostoxx50 at its max in 2000, you are nowhere near having it recover to that level. Which would be unfortunate for a pensioner as you have now reached you life expectancy.
 

Colm Fagan

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I agree with the general thrust, that the return on the EURO STOXX 50 over that period was miserable. We are missing a key piece of information, however, viz. the return including reinvested dividends. The capital only figure has no relevance for ordinary investors. Can anyone get their hands on the total return over the period, including reinvested dividends?
 

darag

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You can switch between price and total return versions of the index here: https://www.stoxx.com/index-details?symbol=SX5E
By my rough calculation, the average total annual return is about 2.4% over the last 19 years. Indeed the price-only version is underwater for the same period.
On the other hand, if you bought 3 years later in 2003, you'd be looking at a healthy 7-8% average return. This sort of analysis is cursed by sensitivity to start and end dates.
Also if comparing with say an American equity index, then you should also take into account that EUR/USD movement over the period will flatter the returns on an index priced in USD. USD is worth about 20% less now than it was 19 years ago.
And eurozone inflation has been at historical lows for the period - rarely above 2% and on occasion negative.
 

NoRegretsCoyote

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By my rough calculation, the average total annual return is about 2.4% over the last 19 years. Indeed the price-only version is underwater for the same period.
That's about a percentage point above inflation over the period. So net of fees basically zero return.

I'm not sure that the index would be the kind of place you would be looking for stellar returns anyway. A lot of it is utilities and construction which don't innovate much.

There is telecommunications and banking as well which in Europe have had a hard time for specific reasons over the last ten years.
 

Marc

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Some more context for the relative poor performance of Europe relative to rest of world expanding beyond just the Eurostox 50 which is a poor index at the best of times like the Dow Jones in the USA when you can invest in a total market index
 

joe sod

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@Marc so the only outstanding performance was in the small cap index, but that's to be expected as is the nature of small cap stocks. The best period was from 1999 to 2000,obviously choosing 1999 rather than 2000 makes a huge difference as the starting point because that was the last year of outstanding performance in European stock markets.
The msci Europe index performed somewhat better than the euro stoxx 50 but not by much and crucially choosing January 1999 as starting point makes the big difference to the performance.
There is no way to dress it up the European markets are performing dismally especially with all that quantitative easing not even registering on stock markets.
 

Sarenco

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FWIW, the MSCI Europe index modestly outperformed the MSCI World index, in USD terms, from end-1987 to date.
 

joe sod

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FWIW, the MSCI Europe index modestly outperformed the MSCI World index, in USD terms, from end-1987 to date.
Yes but that more or less reinforces what I was saying earlier, the European stock markets performed very well in 1980s and 90s but not since 2000. To show a good performance for a European focussed index you need to include the 1990s and even 80s as in your example. 1987 is a very long time ago now, most people working and earning today were not investing back in 1987. Even Warren buffet uses 10 years as a time frame for investment, not 30 years.
In the 80s and 90s European stocks were not dealing with competition from China and the Italians, Greeks and Spanish had their own currencies so could devalue in order to keep their industries competitive.
 

Sarenco

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Yes but that more or less reinforces what I was saying earlier, the European stock markets performed very well in 1980s and 90s but not since 2000.
Not really.

European stocks comfortably outperformed US stocks from 2000-2009. European stocks have certainly under-performed their US counterparts since the financial crisis (largely as a result of the sectoral composition of the respective markets).

But 10 years is a pretty short time period in stock market terms. If you look at the long-term (30 years+), European stocks have performed pretty much bang in line with the average return of all developed world stock markets (which is what you would expect).

Drawing any long-term conclusions from only 10 years of stock market performance is silly.
 

cremeegg

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My reading of the above is that both European and US stocks performed badly from 2000 to 2009, since then both have improved, but the US much more than Europe.

I wonder why this is. Were European stocks overvalued, have European companies fallen behind in terms of their ability to compete on the global stage.
 

Sarenco

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I wonder why this is. Were European stocks overvalued, have European companies fallen behind in terms of their ability to compete on the global stage.
Not really @cremeegg.

It really comes down to the sectoral composition of the respective markets. The U.S. market has a greater concentration of tech stocks (so got creamed in the dot.com bust), whereas financial stocks make up a greater proportion of European markets (which obviously got creamed in the financial crisis).

Also, currency values and the choice of end-point in the comparison are highly relevant.

Developed markets tend to leap frog each other from time to time in terms of performance. At current valuations, there is no reason to believe that European stock markets will under perform US markets over the next decade. But who knows what the future holds?
 

cremeegg

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Also, currency values are highly relevant.
Thats true, and in my reading I don't think that I looked at the Euro performance of US stocks closely enough.

the choice of end-point in the comparison are highly relevant.
Anyone can create a distorted view of an index performance by carefully picking start and end dates. I don't think I have done that. How have markets done in 20 years is a fair question, how have markets done since the height of the dotcom boom is a fair question.

It really comes down to the sectoral composition of the respective markets.
Yes, but I think you are drawing the wrong conclusion from that sound observation. Europes strengths lie is sectors which are at a disadvantage.
 

Sarenco

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Europes strengths lie is sectors which are at a disadvantage.
Well, the sectoral composition of European stock markets has certainly proved a relative disadvantage since the financial crisis.. But equally it proved a relative advantage during the nine years prior to the financial crisis.

I certainly wasn't suggesting that you were cherry-picking an end-point but if you take the 20 years ending at the start of 2009, European stocks comfortably outperformed US stocks, in dollar terms.

My point is really that different markets outperform at different times but over the long term (30 years+) they tend to mean revert (in broad terms).
 
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