How does the Europe market work?
More than just ample amounts of chocolate and copious varieties of cheese, Europe can be a region to look at when you’re looking at diversifying your investments. The European market has been under the spotlight recently in the mainstream news.
If you are looking for a new region to invest your money in European equities can add some variety and diversity to your portfolio. Diversifying your investments can lead to higher returns in the long term – and in the end, we are all seeking the best return for our money.
What to know before buying European equities?
The European equity market consists of some different stock exchanges – with major stock exchanges operating within each of the larger countries such as Germany and France. However, there are also two major stock exchanges which cover Europe more broadly:
- Euronext, which has bases in Amsterdam, Brussels, London, Lisbon and Paris.
- OMX, which is comprised of Scandinavian and Baltic equity trading
Both of these markets have lots of choices of different equities to buy and sell and lots of different people for you to buy and sell with. This characteristic is known as liquidity – and the Euronext exchange is the most liquid of the two.
Getting started in the Europe Market
For the more liquid equities, your broker will help you with the simple paperwork involved in trading European equities. You do not need to worry too much about this detail as you can place your buy and sell orders with your broker and they will take care of the rest.
However, a lot of the European market is not straightforward to access for smaller trading amounts. Therefore, when investing in the European equity market, the best option as a Singapore-based investor can be to buy a share in a European fund. This means that a financial institution will go to the trouble of investing in a range of European equities – with the associated costs and paperwork – and hold them together in a fund. They will then simply sell you a piece of that fund in one straightforward transaction.
Purchasing your equities in the Europe Market?
As well as the exchanges that span the wider European region, there are some national markets that are dominant on a global scale.
The two biggest of these are The London Stock Exchange in the United Kingdom and the Deutsche Börse in Germany – both of which are in the ten biggest in the world. There are two main markets in which companies trade on the London Stock Exchange.
There is the main market which has over 1,300 large companies listed from 60 different countries. The second market is the Alternative Investment Market (AIM) which acts as an international market for smaller growing companies. Normal trading sessions on the UK main market run from 8.00am to 4.30pm Monday to Friday UK time, with opening and closing auctions at either side of the trading session.
In the UK the biggest index is the FTSE 100 – it is the main share index of the 100 most highly capitalised UK companies listed on the Main Market. This index covers a broad range of industries. All trading at the London Stock Exchange takes place electronically through screen-based trading systems.
For Germany and the Deutsche Borse, the major traded index is the DAX index. This is an index made from blue-chip stocks consisting of the 30 major German companies trading on the Frankfurt Stock Exchange which is a subsidiary of the Deutsche Borse.
The Frankfurt Stock Exchange accounts for over 90 percent of the turnover in the German market and operates under a purely electronic trading system with hours of trading running from 9 am to 530 pm and a closing auction from 5 pm to 535pm.
Both of these European markets are very popular with investors on a global scale and can offer good returns and diversification to your portfolio with a fairly stable risk profile.
What should you look out for?
The key difference for you when investing in European equities is the timing. Singapore is 7hours ahead of time of Europe. This means when it is 9 am in Europe it will be 4 pm in Singapore. So if you wanted to follow the European equity market through the trading day, this would begin during your afternoon in Singapore time.
Also, don’t forget that there are risks involved in equity investing. If the company goes bankrupt, whether European or Singaporean, you risk losing the total amount you invested.
When investing in European equities keep in mind that your investment can be affected by European-based factors – such as an economic and political change in the region. This can be especially challenging as Europe is made up of a number of distinctly different countries each with unique characteristics.
Keeping track of your equity portfolio
An important part of investing in the Europe market is the currency difference. You will be buying and selling equities in Euros. Your broker will convert your Singapore dollars to Euros, but the rate is constantly changing. Keep a close eye on this exchange rate when making your investment choices – as this can affect how well your investment performs. Monitor your equity portfolio carefully, and you are more likely to achieve higher returns on your investments.
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