Europe is one of the most economically developed regions in the world. The old continent has many strengths, but also some weaknesses. In this post, we analyze the 8 most important stock market indices in Europe.
- Top Stock Market Indices in Europe
Europe is one of the most economically developed regions in the world. The economy of the European Union alone is larger than that of the United States and China. If it were a country, we would be talking about the largest economy in the world. And Europe has other important countries that are not part of the European Union, such as the United Kingdom, Switzerland or Norway.
When it comes to demographics, about 500 million people live in Europe. This figure does not include the European part of Russia. Due to the conflict that began in 2022, Russia has been excluded from most stock market indices, so it is better not to take it into account when talking about investments in Europe.
The European economy is also very diverse. There are highly developed countries, such as the Netherlands or Ireland, and emerging countries, such as Bulgaria or Romania. At the same time, there are highly industrialized regions, like Germany or Switzerland, countries with a very strong financial sector, such as the United Kingdom or Luxembourg, and countries that dominate in the luxury industry, such as France or Italy.
When it comes to natural resources, although many European countries import most of their energy and raw materials, certain regions are producers of them, such as Norway, the United Kingdom and Poland.
As you can see, there are many reasons why investing in Europe can be interesting. However, the old continent also has some important weaknesses.
On the one hand, Europe is probably the region in the developed world with the most bureaucracy. Many of these problems stem from the way the European Union works. And even countries that are not part of it must comply with many of the regulations imposed from Brussels.
As a result, both production costs and taxes are high in most countries. And fewer companies are formed than in other regions. In other words, such regulations act as a brake on economic activity.
On the other hand, Europe’s other big problem is an aging population. Just as countries like Japan and China are ageing rapidly, Europe’s population is in the same situation. That limits the size of the European economy and may eventually make it much smaller.
As an interesting fact, the number of people employed in Germany reached its peak in the late 1990s. Since then, there has been a slow but steady decline in the number of active workers. Fewer workers means fewer productive resources.
Investing in Europe therefore has both positive and negative aspects. For those who are interested in investing in Europe passively, next we will analyze 8 of its most important stock market indices.
These indices can also be used to carry out a historical analysis of the returns experienced by European stock markets in general.
Top Stock Market Indices in Europe
The 8 stock indices that we will analyze in the following sections belong to 4 different providers. In terms of market capitalization, Europe represents the second most important region in the world, behind the United States and ahead of Asia.
As a result, index providers that calculate and publish stock market indexes have a strong incentive to give good coverage to Europe. Many of these indices are used to build passive investment vehicles, such as ETFs.
1) Euro Stoxx 50
The Euro Stoxx 50 is probably the most famous European stock index that exists, although it is not the best representative for the entire continent´s stock market. In fact, the Euro Stoxx 50 only considers countries that are part of the Eurozone. As a result, it excludes both countries that are outside the European Union, such as the United Kingdom, and those that are not part of the euro zone, such as Sweden.
And it should be noted that the British stock market is the largest in the continent by capitalization. Meanwhile, Switzerland is the fourth largest, only behind the United Kingdom, France and Germany.
However, the Euro Stoxx 50 is the most important index for the equity futures trading in Europe. As a result, it receives a lot of attention from the financial press. And, as it could not be otherwise, there are multiple passive investment funds that make it possible to invest in the index.
Thus, the Euro Stoxx 50 is made up of 50 of the largest European corporations. Some of these are Allianz, Daimler, LVHM, Sanofi or Iberdrola. The index is dominated by a handful of countries. In fact, German and French companies together account for 70% of the value of the index.
Within the index, companies are weighted based on their market capitalization adjusted for free float. And regular updates are carried out with the aim of keeping the index relevant and up to date.
The Euro Stoxx 50 is calculated by the company Stoxx. You can find additional details about it on their website.
2) Stoxx Europe 600
The Stoxx Europe 600 is the other major stock index calculated by Stoxx for the European continent. In this case, however, and as its name suggests, it is an index that has many more companies.
The Stoxx Europe 600 is composed of the 600 largest companies among all developed countries in Europe. As a result, we can find many countries that are not part of the Euro Stoxx 50, such as the United Kingdom, Switzerland, Sweden and Norway.
Therefore, some of its most important companies are Nestlé, Novartis, HSBC and Barclays. It is an index that has stocks denominated in many multiple currencies. Approximately 40% of its companies are not traded in euros.
While the main version of the Stoxx Europe 600 is published in euros, we can also find versions of it in other currencies, such as US dollars, British pounds, Swiss francs and Mexican pesos.
For those looking for a European equivalent to the US´s S&P 500, the Stoxx Europe 600 is one of the alternatives, although not the only one. You will find more details about it on the Stoxx website.
3) MSCI Europe
The MSCI Europe is a stock market index calculated by the American company MSCI. The number of companies within it is not constant, but fluctuates regularly depending on how many meet the criteria to be included.
Thus, the MSCI Europe is composed of all European companies that are part of the global stock index for developed markets MSCI World.
Because the focus is on developed countries, and hundreds of European companies meet all eligibility criteria to be part of the index, the MSCI Europe is highly correlated with the Stoxx Europe 600.
Not only do we find a similar number of stocks in both indices, but in both cases companies are weighted based on their market capitalization adjusted for free float.
MSCI calculates versions of this index in many different currencies, with the aim of accommodating the needs of investors around the world. If you want to read more information about it, you can use this link to the MSCI website.
4) MSCI Emerging Markets Europe
Another stock market index calculated by MSCI is the MSCI Emerging Markets Europe. As its name suggests, it is composed of emerging countries in Europe. Many of them, however, are already quite prosperous economies.
Thus, here we can find the most important stocks from countries such as Poland, the Czech Republic or Hungary. Greek stocks are also included here because MSCI decided a few years ago that the Mediterranean country no longer met the criteria of a developed country.
Thus, the MSCI Emerging Markets Europe has all the stocks from European emerging countries that are part of the global MSCI Emerging Markets Index. As a result, the exact number of companies within it fluctuates over time.
Some of its most important companies are OTP Bank and Dino Polska. You can find more information directly from MSCI.
5) MSCI AC Europe
We have already seen both the MSCI Europe and MSCI Emerging Markets Europe indexes. For those who want to invest in all European countries at the same time, both developed and emerging, the MSCI AC Europe makes it possible.
In fact, the MSCI AC Europe is simply the result of consolidating the two indices we have analyzed above.
Because companies are weighted based on their free-float-adjusted market capitalization, it is the larger corporations that tend to dominate within the index. And with most large companies being from developed countries, it’s really the stocks from the MSCI Europe that tend to move this index.
Approximately 90% of the MSCI AC Europe’s total capitalization comes from developed countries, so the correlation between the MSCI AC Europe and the MSCI Europe is very high.
However, it is an interesting index. For more information, here is the link to MSCI´s website.
6) S&P Europe 350
The American company S&P Dow Jones, responsible for publishing and owner of the famous S&P 500 index, calculates the S&P Europe 350 index. It is composed of the 350 largest companies from developed countries in Europe.
Hence, it is a slightly more concentrated version of the Stoxx Europe 600 or the MSCI Europe. However, because companies are weighted based on their free-float-adjusted market cap, the S&P Europe 350 is highly correlated with both those indices.
As a major difference, we can mention that the S&P Europe 350 excludes relatively smaller companies. You can find more information about it on the S&P website.
7) S&P Euro
S&P Dow Jones calculates another stock index for Europe. This is the S&P Euro. This index is made up of all companies from euro zone countries that are part of the S&P Europe 350.
Thus, of the 350 companies in the S&P Europe 350, the S&P Euro excludes all those that are not from euro zone countries. As a result, all British, Swiss, Norwegian or Swedish stocks are excluded. These represent approximately one-third of the market capitalization of the S&P Europe 350.
If you are interested in additional information about it, you will find it on the S&P Dow Jones website.
8) FTSE Eurotop 100
Finally, the company FTSE Russell, a subsidiary of the London Stock Exchange that is responsible for publishing stock indices, calculates the FTSE Eurotop 100. This is a slightly different index from those we have seen so far.
The FTSE Eurotop 100 is made up of 100 of the largest European companies from developed countries. This means that it focuses on the largest, and includes both countries in the Eurozone, as well as countries that do not use the single currency, or are even outside of the European Union.
In fact, the United Kingdom and Switzerland represent two of the most important countries for the FTSE Eurotop 100. If you are looking for more information about it, you can visit the FTSE Russell website.
I hope you found this article about European stock market indices useful. If you want to learn about the most important stock indices in the United States, check out this link:
Top 7 Stock Market Indexes in the United States
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