EU50 forecast: Index recovers losses but macro factors and war drums continue to weigh on prospects

European equities have been affected by a shift in macroeconomic conditions worldwide amid rising inflationary pressures. Additionally, geopolitical tensions in the region have increased this year due to Russia’s invasion of Ukraine.

Despite the headwinds, the value of the regional Europe 50 Index (EU50) – also known as the Euro STOXX 50 – has declined by as little as 0.65% so far in 2022 (as of 6 December), in stark comparison to the US-focused S&P 500 Index (US500), which fell by over 16%. However, EU50 has grown close to 8% in the past three months.

Live Stoxx Europe 50 Chart

The global economic landscape has changed dramatically after the coronavirus pandemic and European governments have not been spared the effects of the health crisis.

Against this constantly evolving backdrop, what can be expected from the EU50 Index? In this article, we take a closer look at factors driving the value of this index and EU50 predictions drafted by third-party services to outline plausible scenarios for the future.

What is the EU50 Index?

The EU50 Index is a benchmark made up of the 50 largest companies in Europe by market capitalisation. The components of this index are reviewed once a year in September and, based on how the values of the firms that comprise it have fluctuated, some companies may be added while others might be removed. 

At the time of writing on 6 December, ASML Holding NV (ASML NV) was the most heavily-weighted company on the index, accounting for 7.13% of the price. The index’s top 10 holdings accounted for 41.92% of the total weight, which means these companies’ performances would have a bigger effect on the benchmark. 

The top 10 components of the Euro Stoxx 50 index as of 31 October 2022 are:

• ASML Holding NV (ASML NV) – 7.13%
• LVMH Moet Hennessy (MC) – 6.12%
• Linde (LIN) – 5.52%
• TotalEnergies (TTEF) – 5.30%
• SAP (SAPd) – 3.89%
• Sanofi (SAN) – 2.68%
• Siemens (SIE) – 3.02%
• L'Oreal (OR) – 2.84%
• Allianz (ALVd) – 2.73%
• Schneider Electric (SUp) – 2.69%

TotalEnergies (TTEF) leads the scoreboard among this year’s winners, with a 31.6% upside year-to-date (YTD), followed by Deutsche Telekom (19.7%), Deutsche Boerse (18.7%), and Munich Re (16.5%), according to data provided by Investing.com.

Among the worst performers was Philips with a 56.5% accumulated loss since the start of 2022, followed by Adidas and Vonovia SE with YTD losses of around 50% each.

Notably, ASML Holding, which has the highest weight in the index, has shed 19% of its value since the year started while Siemens, which has a 3.02% weight, has also retreated 11.3%. The accumulated losses of these two top components weighing on the overall performance of the index and their prospects must be considered when drafting any plausible EU50 forecast.

EU50 Index price drivers

The chart above shows that the downtrend for the EU50 Index started in January this year as increasing hostilities between Russia and Ukraine threatened to disrupt the region’s geopolitical stability.

Additionally, inflation has been surging in various corners of the continent and central banks have been forced to take action, although they have been much slower than the US Federal Reserve (Fed) in responding to this phenomenon.

The Bank of England (BoE) raised interest rates by 75 basis points bps to 3% during its November meeting – the largest rate hike since 1989, increasing the cost of borrowing to the highest level since late 2008. Meanwhile, the European Central Bank (ECB) the ECB raised its key interest rate by 75 bps in October 2022, bringing borrowing costs to the highest since early 2009, and there was broad support for a meeting-by-meeting, data-dependent approach to future monetary policy decisions.

Economists have been concerned about a potential central-bank-induced recessionary cycle as higher rates could endanger the stability of heavily indebted corporations and prompt consumers to cut back on spending while the global economy is still recovering from the hit it took during the pandemic and supply chain disruptions.

Additionally, Russia’s invasion of Ukraine has led to sanctions and embargoes imposed on the country that have pushed the price of fossil fuels higher, further driving inflation across the world. Russia is a crucial supplier of natural gas to Europe and disruptions in its supply could result in economic pain for countries in the region.

These negative catalysts partially explain why the value of the EU50 index has dropped since the year started, although it has recovered most of its losses by early December. 

EU50 forecast: Algorithm-based predictions

As of 6 December, WalletInvestor provided forecasts for Euro Stoxx 50 futures. The algorithm held an optimistic short-term outlook on the index, with the EU50 forecast for 2023 expecting the price at $3959.999 by the end of January, and $4144.912 by the end of December – a potential upside of over 9%.

The longer-term Europe 50 Index forecast for the following year was also bullish, projecting that the price could be $4328.488 by year-end in 2024. The EU50 forecast for 2025 suggested that the price could hit $4509.341 at the end of that year.

The baseline short-term EU50 forecast from Gov.Capital was also bullish. Its algorithm-based prediction saw the price rising to $4007.335 by the end of January 2023, based on an analysis of the index’s price trend.

Its mid-term outlook was extremely bullish, expecting the index to climb to $6865.401 in a year’s time – a potential 80% gain. The prediction for the end of December 2024 was $10633.04 and $15415.73 for December 2025. 

Neither service provided an EU50 forecast for 2030.

None of the EU50 forecasts or the opinions and comments expressed in this article should be taken as a recommendation to invest in the index. Investors are encouraged to perform their own due diligence before making any investment decision. And never invest money that you cannot afford to lose.

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