€780 billion outflows Europe’s largest stock exchange in 2022 as financial markets bleed

The stock market continues to operate in an environment of high uncertainty, with most economies struggling to remain afloat amid soaring inflation and a subsequent slowdown in consumer spending. Consequently, entities like Euronext paint a picture of sustained capital outflow as investors remain skeptical about the general economic outlook. 

In particular, data acquired by Finbold indicates that as of October 2022, Europe’s largest stock exchange Euronext had lost €780 billion in capital this year at €4.87 trillion. The value represents a drop of 13.8% from the €5.65 trillion market cap recorded in 2021, the highest valuation in the last nine years. Notably, last year’s valuation represented an increase of 28.12% from 2020’s figure of €4.41 trillion.

Elsewhere, LVMH Moët Hennessy Louis Vuitton remains the highest-valued company on Euronext, with a market cap of €321.58 billion as of October 2022. Merck and Co rank second at €237.24 billion, followed by oil giant Shell at €200.64 billion. ASML Holding ranks fourth with a market cap of €194.29 billion, while Caterpillar occupies the fifth spot at €176.02 billion. 

Triggers of Euronext capital outflow 

The capital outflow from Euronext can be attributed to the prevailing economic uncertainty characterized by extended geopolitical tensions and stock market volatility alongside skyrocketing inflation and the threat of interest rate hikes. In this line, the factors have led to a fear of recession, with investors staying on the sidelines waiting for possible changes. 

Notably, the ongoing uncertainty partly triggered panic outflows of capital from the exchange at a period consumer spending appears depressed amid rising living costs, energy prices, and unemployment. At the same time, investors have become more sensitive to risk investment, hence reducing their stake in stocks.

Indeed, Euronext CEO Stephane Boujnah had warned that the resulting market volatility means investors should be ready for a bumpy ride. 

In general, Europe’s economy has struggled post-pandemic, associated with a cocktail of risks that threatens to reverse growth, with the stock market standing in line to face the adverse impact. Besides inflation, the region is grappling with an energy crisis uncertainty alongside the effects of climate change. 

It is worth noting that exchange has also been impacted by the decision taken by specific jurisdictions in a bid to contain the economy’s free fall. For instance, most European stocks are still recovering from the negative impact following a previous plan by the Bank of England to buy long-dated bonds to calm the market chaos temporarily. 

IPO activity remains low  

Furthermore, companies have been hit with liquidity concerns as they seek to raise funds. However, a majority have been held back by investors’ reduced appetite to take on equity risks. 

Interestingly, the slump in Euronext’s valuation can also be linked to reduced activity around initial public offerings (IPO). Notably, across 2021, part of the exchange’s record market cap could be attributed to the roaring IPO activity after the downturn in 2020. 

At the same time, the exchange has also failed to attract the frenzy around the Special Purpose Acquisition Companies (SPAC). This comes as European regulators warned that the approach is associated with risks of dilution, conflicts of interest, and uncertainty.  

It’s worth noting that our previous report indicated that among leading global exchanges, Euronext only added three companies this year as of September 2022. 

Overall, most companies planning to go public this year have taken a step back to evaluate the markets and find ways of adapting to the existing conditions. 

On the other hand, Euronext is also faced with a series of delistings as the bear market takes shape, with companies looking for means to save costs in line with tackling the current economic turmoil. For instance, oil drilling firm Tullow Oil alongside Holcim is among the high-profile entities to announce their exit.

The future of European stocks

Despite the loss of capital, analysts have maintained the European stock market is likely to rally in the coming months. Notably, dropping valuation on platforms like the Euronext exchange is making the stocks look attractive with the potential to attract new investors. However, the recovery will depend on how economies exits its current state. 

Like other global economies, Europe will also be monitoring happenings in the Asian market with a specific focus on China. There are widespread fears the country’s new coronavirus policies could trigger an economic reversal.