Amsterdam stock exchange: benefits and risks of investing in the Netherlands
13:54, 15 October 2019
Located in the heart of Europe and considered the oldest securities exchange in the world, the Amsterdam Stock Exchange (ASE) is an integral part of Euronext. Founded in 2000 with the merger of the Amsterdam, Paris, Lisbon and Brussels stock exchanges, Euronext has grown to include markets in London, Dublin and most recently Oslo. The Euronext currently has over 1500 listed companies with a market capitalization in excess of €4.1 trillion.
Dutch Stock Market
The Amsterdam stock exchange started in 1602 and was originally conceived as a method to finance the transport of goods and people from Asia by the Dutch East Indian Company, which had recently been granted a 21-year trading monopoly with these new territories. The Dutch stock exchange was a progression from the original Amsterdam Bourse, which was primarily an open-air commodities exchange created in 1530. Since its pioneering origins the Amsterdam Stock Exchange has continued to innovate and remains one of the most relevant and attractive global securities markets.
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Dutch stock market outlook
Ranked 6th in the annual IMD world competitiveness rankings in 2019 and known for a deep history of secure financial markets the Euronext Amsterdam Securities Exchange is an attractive location for capital seeking to access the European Union.
The Dutch economy has grown by 0.5% in both the first and second quarters of 2019, outpacing the economic predictions of 0.3%. This growth has been driven primarily by an increase in exports and a decrease in imports. This growth is expected to slow down moving into 2020, though it is still expected to remain positive with no indications of contraction.
Benefits and risks of investing in the Netherlands
The Netherlands remains a top investment destination for businesses and individuals attracted by the stable and predictable political environment. The Netherlands has a highly technical workforce and transparent access to European capital which attracts a significant amount of foreign investment. Euronext Amsterdam provides the fastest single-entry point to multiple listing markets in Europe. It is a highly visible and respected market with access to a large pool of domestic, European and international investors.
In the Netherlands, like all other European markets, there are some serious volatility concerns regarding the uncertainty surrounding Brexit and how this will affect the value of the Euro and short-term trade with the UK. Due to strong historical trade ties with the UK a no-deal Brexit will impact the economy of the Netherlands significantly more than other European countries, according to SEO. It will increase the costs of trade due to tariffs, the costs of good and most significantly the budgetary commitments of the Netherlands to the EU. SEO concluded that a no-deal Brexit could cost the Dutch economy upwards of €34 billion by 2030. This uncertainty is a common thread in all European economies and should be considered when making investment decisions in the short to medium term.
There are also some risks associated with the reliance on petroleum-based companies and the growing environmental movement however these risks are not significantly higher than in many other developed countries. The Netherlands also has an aging population which is being counteracted with a progressive immigration policy and generous child benefits to encourage increased birth rates.
Netherlands 25 stock market index
The Netherlands 25 stock market index (NL25), otherwise known as the Amsterdam Exchange Index (AEX) is composed of a maximum of 25 of the most traded Dutch securities on Euronext. This list is reviewed in full a minimum of 4 times annually. The AEX exchange index was founded in 1983 and is a capitalization-weighted index which means the listings are weighted according to the total market value of their outstanding shares. Companies must have a minimum of 25% of shares considered “free float” (shares freely traded among public investors) to be included in the index. AEX, unlike other major European indices, includes only the most traded class of shares for companies having a multiple share class structure.
The top 5 companies comprising the AEX as of August 2019 are:
ASML Holding – 15.11%
Unilever – 14.75%
Royal Dutch Shella – 13.29%
Relx – 8.14%
Philips Kon – 7.13%
The AEX was initiated with a base level of 100 index points (adjusted to 45.378 due to the adoption of the Euro). It reached its highest level on September 5, 2000 at 703.18. In the wake of the global dot-com bubble bursting the index lost a third of its value between 2000 – 2003. As of August 2019, it is currently trading at 554.28 points.
The AEX along with the Brussels BEL 20, Paris CAC 40 and the Lisbon PSI-20 form the list of the most significant indices traded on the Euronext.
In summary
With its rich trading history and continued innovation, the Euronext Amsterdam Exchange remains a key component in the financial industry in Europe and globally. Dutch political stability, a highly educated workforce and its strategic location within the European Union make Amsterdam a strong contender for anyone looking to gain access to European markets and capital.
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