Old European stock market gets a facelift
Not only Ludwig Van Beethoven was a genius composer but he also remained among Austria’s first ever shareholders. Christoph Boschan, chief executive officer of Wiener Börse AG, highlighted the fact earlier this year, which marks the 250th anniversary of the Vienna Stock Exchange founded in 1771 by Empress Maria Theresa.
“And he also knew: if you want to create wealth, the stock market calls the tune. This has not changed in 250 years. It becomes especially clear in times of crisis like the current pandemic that economies with developed capital markets are more resilient,” added Boschan.
Shares of the Austrian central bank, or Oesterreichische Nationalbank (OeNB) in local language, were the first to trade in Vienna back in 1818 but no longer trade. To date, construction firm Porr AG and the world’s largest bricks producer Wienerberger AG compete as the two Austrian public firms having been listed for the longest period. Both companies had their listings done in 1869.
OeNB had also been the first common stock trading on Frankfurt Stock Exchange, which has celebrated its 200 years in 2020. If it is uncertain which current public company has been the longest listed on Xetra (likely to be one of the Dax components), German shipping company Köln-Düsseldorfer Deutsche Rheinschiffahrt AG, known as KD, stood 185 years afloat between 1832 and 2017 before delisting.
In Sweden, local financial group Handelsbanken is close to the Austrian companies’ track record with its shares trading since as far as 1873 on Stockholm Stock Exchange, suggests Nasdaq’s statistics team. Neighbouring Finland’s oldest stock is Fiskars, established in 1649 and listed since 1912 on Helsinki Stock Exchange. The company manufactures products for consumers, industry and agriculture, including its notorious orange-coloured scissors.
What about Euronext’s exchanges? According to data provided by the pan-European stock exchange operator to Asset News, the following companies have been listed for the longest period on its respective markets. These include Bank of Ireland (Euronext Dublin, listed since January 1799), Rothschild & Co (Euronext Paris, listed since September 1838), Banque Nationale de Belgique (Euronext Brussels, listed since January 1850), Amsterdam Commodities also known as Acomo (Euronext Amsterdam, listed since January 1909), Norsk Hydro (Euronext Oslo, listed since January 1909) and Ramada (Euronext Lisbon, listed since February 1968).
All these firms made history of the European stock market, often viewed as old by global investors. In Europe, Markus Hansen sees quality that he defines by strong track record, brand perception, heritage values and pricing power. It takes decades not three or four years to reach such quality level, the European equity portfolio manager and senior research analyst at Vontobel Quality Growth told Asset News.
“Old European companies have seen many changes including changing economic cycles, nationalisation episodes, and corporate taxes at 80%. They have gone through several crises including world wars. Yet, they have constantly made investments to grow their assets value during these crises (eg. LVMH’s acquisition of Tiffany during the Covid-19 crisis) and to reinvent themselves.
“Those European brands have relatively small domestic markets so they have no choice but to go international. Moreover, these firms have built a very strong position in emerging markets in the last few decades that have help them get the best of both old and new worlds and become true global brands,” he stressed.
New York-based Hansen believes there are many great brands with long histories and strong franchises in Europe such as LVMH and L’Oréal in France or Exor and Ferrari in Italy. Said he, they are not typically affected by a price increase provided their position and pricing power. Nonetheless, he pinpointed that if Europe is ahead on environmental and social aspects, governance issues arise as old European companies either are family-controlled or get some political support. Hence, the transition to ESG remains “a long slow move” for them.
Also the old European stock market as a whole has suffered from a lack of interest for European equities over the last decade, said the fund manager. This was triggered partly by the macro situation. “The financial crisis of 2008-2009 has created much turmoil in the eurozone (sovereign debt crises, etc) and the ECB assumed fiscal support on its own contrary to the US where the Fed had a more proactive approach. Now a change is happening in Europe’s common fiscal approach through the birth of the Next Generation EU fund. This €750bn project was the missing big piece. In a way, the Covid-19 crisis reignited European equity markets. Valuations of European public companies are particularly compelling now,” Hansen pointed out.
Indices are changing from old to new Europe
Old Europe is therefore under investor spotlight anew, getting a facelift. In addition to the NGEU fund, Hansen referred to undergoing changes in the mix of businesses within European equity indices. Financials used to be the largest segment represented but banks have not been anywhere as they faced fines, regulatory burdens, negative rates, weak balance sheets, he said, while value sectors such as energy and utilities stocks have suffered.
“At the same time, the European market improved on healthcare, consuming, information technology. Gas companies have developed and diversified. Tech has provided opportunities. Thus, from the end of 2007 to mid-2021, European equity markets flipped from old to new economy. Also, earnings achieved outside Europe account for more than half of total earnings of European companies,” Hansen explained.
Another illustration of tectonic changes in the European stock market in Vontobel manager’s view is the recent merger of two old companies, French carmaker Peugeot with Italian peer Fiat. “Ten years ago, the establishment of a company such as Stellantis would have been unimaginable. Neither French nor Italian authorities would have explored this option. They would have hanged on tight on Peugeot and Fiat respectively,” he said.
Will new European stocks be the old stocks of tomorrow? Hansen answered that he would not be surprised if, in 10 years from now, energy, utilities and financials still retain a very high share in the indices. “Europe remains a decade ahead compared to other regions in terms of renewable energies and green regulation. Energy companies will be hit by carbon tax so they would rather diversify in renewables. NGEU funds will be critical to fund the energy transition and foster European companies to embrace new energies including hydrogen, solar or wind. Fintechs, online banking, will help European financials’ revival,” Hansen bets.