Europe lags behind in stock market rebound

The benchmark US stock index, the S&P 500, came within a whisker of its record high last week. But not all indices around the world have been so swift to regain the ground lost because of the coronavirus crisis.

The S&P has clawed back more than 99 per cent of the losses suffered between its pre-coronavirus high for 2020, which was also its all-time peak, and its low in the March sell-off. Other major indices, particularly in parts of Europe, have lagged a long way behind.

Italy’s FTSE MIB has recovered about 62 per cent of the coronavirus-related losses since its peak at the start of 2020, and France’s CAC 40 roughly 59 per cent. London’s FTSE 100 has recovered about 58 per cent of the value lost.

In part, these imbalances are another symptom of a global stock rally notable for its lopsidedness. In the US, the comeback has been dominated by huge gains for big tech companies. But remove the likes of Google, Facebook and Amazon, and the recovery looks much less impressive. 

“A lot of this is down to sectoral make-up,” said Guy Foster, chief strategist at wealth manager Brewin Dolphin. “The UK has virtually no tech, and Europe doesn’t have that much.”

Stock indices in China and South Korea, which have relatively heavy weightings towards technology companies, have recouped all their losses and pushed on to set further highs for 2020.

Rises in tech stocks are in part a reflection of a surge in numbers of people working from home during government-imposed lockdowns. But the stocks’ success also highlights the role of central banks in driving the rally, analysts say.

Massive bond-buying programmes have pushed bond yields to record lows. That reduction in long-term interest rates reduces the so-called discount rate, used to calculate the present value of future cash flows. Fast-growing tech companies are more dependent on future profits to justify their valuations, meaning they benefit more from this shift.

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