## Can European Stock Indices Continue Their Rally in 2024? Opportunities and Risks Coexist

Since the beginning of 2024, European stock markets have performed exceptionally well. The German DAX index has risen nearly 10% year-to-date, the French CAC 40 has increased by 8.29%, and the STOXX 600, covering 90% of European listed companies' market value, has gained 6.88%. Notably, the STOXX 600's performance in the first quarter set a record high. What investment logic underlies this rally?

### Three Core Drivers Fueling Capital Inflows into European Stocks

**Valuation Discount Effect**

The US and European markets present a stark contrast. The forward P/E ratio of the S&P 500 is as high as 19x, while the overall European market is around 14x. This means investors can buy cheaper assets in Europe with the same amount of money. In Q4 last year, funds focused on European stocks attracted €45.7 billion in inflows, with an annualized growth rate exceeding 45%, indicating a shift of investor focus westward.

**Inflation Peaking, Easing Rate Hopes Rise**

Eurozone inflation fell from 2.8% in January to 2.6% in February, declining for three consecutive months and dropping below the 3% warning line. The market generally expects the European Central Bank to start a rate cut cycle in 2024. A survey by US banks shows that in February, professional investors net bought European stocks, and expectations of rate cuts are fueling capital inflows.

**Corporate Earnings Recovery**

Several investment banks are optimistic about the profit prospects of European listed companies. Citibank forecasts a 3% increase in EPS for European stocks in 2024, while Goldman Sachs expects profit growth of up to 7%. The combination of a low-interest environment and corporate earnings recovery forms a dual engine supporting the stock market's upward trend.

### A 30-Year History of European Stock Index Fluctuations

To understand the current market, we must look back at history. The STOXX 600, as Europe's most representative stock index, covers sectors such as finance, technology, and healthcare. Over the past thirty years, this index has experienced several major ups and downs.

In the 1990s, Europe experienced rapid economic growth, and the stock market entered a golden period. However, the Asian financial crisis in 1997 and the subsequent Russian crisis shattered the prosperity, causing European stocks to decline. Entering the new millennium, the internet bubble pushed tech stocks to absurd valuations, and the 2000-2001 correction inflicted heavy losses on investors.

After the September 11 attacks, European stocks embarked on a long recovery. China's accession to the WTO, global trade expansion, and low-interest policies by central banks worldwide drove European stocks higher. But the 2008 global financial crisis changed everything. The bankruptcy of Lehman Brothers triggered a chain reaction, followed by the European sovereign debt crisis, with Greece, Ireland, Portugal, and others facing severe debt issues, plunging Europe into recession.

The European Central Bank and national governments' quantitative easing eventually stabilized the situation, leading to a new rally in European stocks. The COVID-19 pandemic in 2020 caused a short-term market shock, but government rescue measures and central bank expansion policies quickly reversed the trend, and European stocks rebounded strongly.

### The Top Three Performing Sectors in European Stocks in 2024

Over the past year, three sectors have led the European stock rally.

**Industrial Production: Aerospace Leading the Overall Rise**

Europe's industrial sector includes aerospace, manufacturing, and construction. Airbus, as a global aerospace giant, benefited from Boeing's ongoing safety issues, with its stock soaring. However, its P/E ratio has risen to a five-year high of 35.60, posing valuation risks. Technically, a support level around €136 is noted for potential pullbacks. Currently, the RSI is above 70, indicating short-term overbought conditions, so investors should watch for correction pressures.

**Information Technology: Software and Service Innovation**

European tech giants like Germany's SAP, France's Capgemini, and the UK’s Arm lead the IT industry. The sector rose 19% last year. For example, SAP's stock price has broken through the upper limit of its medium- to long-term upward channel, suggesting an acceleration of the upward momentum. However, its P/E ratio is as high as 56.39, a ten-year high, with short-term correction risks. Support is around €121. Technical indicators show negative divergence between RSI and price, indicating downside risks.

**Consumer Discretionary: Opportunities in Luxury and Retail**

Brands like LVMH and Pandora hold significant positions in the global market. Pandora, despite being weighed down by the Chinese market, saw a 6% YoY increase in global revenue in 2023, with organic growth of 8%, exceeding market expectations. Last year, its stock surged over 90%, but due to the rapid rise, short-term correction pressure exists. Currently, the stock is testing the resistance at 1160 kroner.

### Three Paths for Taiwanese Investors to Enter European Stock Indices

**Direct Purchase via Brokers**

This is the most straightforward method. Investors can set market orders, limit orders, stop-loss orders, etc., gaining full ownership, voting rights, and dividends. The downside is higher transaction costs, especially when buying multiple stocks, and most brokers offer low leverage, limiting capital efficiency.

**Indirect Exposure via ETFs**

For cost-conscious investors, ETFs are ideal. Main options include Vanguard FTSE Europe (expense ratio 0.09%, assets $14.8 billion), iShares Core MSCI Europe (expense ratio 0.09%, assets $4.197 billion), providing a low-cost way to track European stocks.

**Leveraging CFDs for Amplified Returns**

CFD trading allows investors to open positions with only a fraction of the contract value through margin, amplifying capital leverage. CFDs support both long and short positions, enabling flexible responses to market changes. This method requires strong risk management skills.

### Outlook for European Stocks in the Second Half of 2024: Opportunities Outweigh Risks

Looking ahead to the remaining months of 2024, both positive and negative factors coexist.

**Supporting Factors: Three Main Reasons**

European inflation continues to decline, and the market consensus expects the ECB to cut rates. Corporate earnings guidance remains optimistic, with many banks raising their full-year forecasts. Compared to US stocks, European valuations are still attractive, providing ongoing capital inflow motivation.

**Risks: Three Major Concerns**

European governments are gradually removing energy subsidies, and post-pandemic fiscal normalization measures may suppress growth in energy, logistics, and other sectors. The eurozone's economic growth forecast has been revised downward from 1% to 0.5%, indicating a weaker macro outlook. The Russia-Ukraine war enters its third year, with ongoing geopolitical risks.

**Overall Judgment: Maintain a Slightly Bullish Stance**

Since negative factors are relatively manageable and predictable, the expectation is that ECB rate cuts and the overall valuation advantage of European indices will continue to attract capital inflows. Investors should stay alert to trading opportunities in the second half of the year but also prepare for market volatility. Although European stocks have already risen, supported by fundamentals and attractive valuations, they remain worth long-term attention.

### Conclusion

European stock markets consist of various national markets, each with its own characteristics. As a highly integrated economic community, European countries' stock markets often display similar features. Throughout history, European stocks have endured multiple tests such as bubbles, financial crises, and debt crises, each time rebounding stronger. The 2024 rally continues the momentum from the previous year. Investors should seize valuation discounts and policy-friendly windows while remaining cautious of short-term corrections. For those looking to invest in European indices, now is a good time to review opportunities and develop strategies.