< Back to Trader Blog Articles

Digital economy replaces bank stocks in European Index

22092020

Equity indices serve to measure the collective performance of a group of equities, typically representative of a region, strategy, sector, or a certain area of the market. In Europe, the Euro STOXX 50 Index is the region’s leading blue-chip index, representing the largest super-sector leaders in Europe by free-float market capitalisation. Following the annual blue-chip review by index provider STOXX, it is to no one’s surprise that the rise of the digital economy replaced some of the out of favour banking stocks, marking one of the biggest changes to the index membership.

Earlier in the month, STOXX announced the result of an annual blue-chip review, that became effective yesterday, September 21, 2020. The Index kicked off the week with five replacements in its underlying members, most notably with a larger representation to the digital economy, mainly through the addition of Prosus and Adyen, and the removal of banking names Societe Generale and BBVA.

In addition, the review also led to the removal of health care company Fresenius, and telecom companies Telefonica and Orange. This made space for the addition of the real estate company Vonovia, capital goods company Kone and beverage company Pernod Ricard.

Index membership is based on free-float adjusted market value at the end of August. Due to the COVID-19 pandemic, characterised by nation lockdowns, remote working and a shift to online consumer behaviour, companies forming part of the digital economy became even more relevant. This includes online retailers, internet companies, businesses offering food delivery and payment companies.

Case in point, Dutch payment company Adyen NV is one of the key beneficiaries to the accelerated trend of ecommerce. Adyen operates a global payments platform that integrates the full payments stack: gateway, risk management, processing, acquiring and settlement. Last August, the company reported a double digit increase in processed volume during its first half of the year, and a 27% gain in net revenue year-on-year.

Similarly, internet investor Prosus NV, is a global consumer internet group, which also holds a 31% stake in Chinese tech giant Tencent. Prosus holds a core ecommerce portfolio, that is expected to continue to benefit from the acceleration of underlying trend toward online ecommerce beyond the covid-19 crisis. Prosus core business segments are its classified business, food delivery and payments and fintech, which all recorded solid growth throughout the past few months.

While the shift in index membership is more representative of today’s growth companies, the inclusion of companies to equity indices has become increasingly important over the years. A company that gains membership to a widely followed index is expected to increase its appeal to a larger pool of investors, and benefit form an increase in passive investing.

Disclaimer: This article was issued by Rachel Meilak, CFA equity analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are 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.

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

Important(Notices)
The information provided on this website 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. Similarly any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri & Co. Ltd. (CC) has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views or opinions appearing on this website.
This website is owned and operated by Calamatta Cuschieri & Co. Ltd (Co. Reg. No. C13729) of 5th Floor, Valletta Buildings, South Street, Valletta VLT 1103, Malta. CC is licensed to conduct Investment Services in Malta by the Malta Financial Services Authority.