What Investors Should Know About the Euronext
Investing in Europe's Largest Stock Exchange
The Euronext is a European stock exchange that combines four national markets in Europe with a presence in Amsterdam, Brussels, London, Lisbon, and Paris. Like other stock exchange, the Euronext offers cash and derivative markets, listing market data, custody and settlement services, and other market solutions. The stock exchange also houses national indices, including the AEX, BEL 20, CAC 40, and PSI 20, as well as components of the EURO STOXX 50.
As of 2017, the Euronext was the largest stock exchange in continental Europe with 1,300 issues representing €3 trillion market capitalization. The stock exchange also has about 260 members consisting of more than 200 trading members and other clearing members.
History of the Euronext
The Euronext was founded on September 22, 2000 as an amalgamation between the Amsterdam Stock Exchange, Brussels Stock Exchange, and Paris Bourse. After the formation of the European Union, the stock exchanges opted to combine to take advantage of the newly integrated financial markets of the common area. The stock exchange went public for the first time in 2001 through an initial public offering (IPO).
In 2001 and 2002, the Euronext acquired the London International Financial Futures and Options Exchange (LIFFE) and the Portuguese stock exchange, known as the Bolsa de Valores de Lisboa e Porto (BVLP), making it one of the world’s largest stock exchanges.
These dynamics made the stock exchange attractive to global stock exchanges that were interested in expanding or building up their presence in the European markets.
In 2006, the NASDAQ moved to acquire the London Stock Exchange (LSE), which prompted the NYSE Group to pursue the Euronext. The Deutsche Borse—Germany’s stock market—tried unsuccessfully to outbid the NYSE Group, but the merger eventually took place in April 2007.
The Deutsche Borse tried to merger with the NYSE Euronext on two more occasions, but the exchange was acquired by the Intercontinental Exchange in November 2013.
The Intercontinental Exchange decided to pursue an initial public offering of the Euronext and the separation was completed in June 2014. The NYSE Euronext eventually traded independently on the New York Stock Exchange under the ticker symbol “NYX”.
Why Invest in the Euronext?
The Euronext is the largest stock exchange in Europe and one of the largest in the world, which makes it an attractive destination for investors. These same dynamics had led to merger and acquisition interest in the company on the part of several other stock exchanges in the past, since stock exchanges tend to realize significant economies of scale and organically entering new markets is difficult from a regulatory standpoint.
Those interested in investing in the Euronext can do so through an investment in the Intercontinental Exchange Inc. (NYSE: ICE), which has a market capitalization of about $40 billion, as of February 2018. Between 2014 and 2018, the stock has risen nearly 70 percent as trading activity has increased over the years. Investors may also be drawn to the 1.4 percent dividend yield, which is slightly lower than the S&P 500’s 1.8 percent yield, as of February 2018.
In 2017, the Intercontinental Exchange reported revenue of $4.6 billion, net income of $2.5 billion, and diluted earnings of $4.23 per share. The results represented the company’s twelfth consecutive year of record revenue driven by an expanding range of content and distribution solutions to meet the needs of evolving markets. The company has also continued to return capital to shareholders through share repurchases.
In addition to investing in the stock exchange, investors may want to consider investing in many of the indexes that are maintained by the exchange. These indexes provide unique exposure to several national equity markets, including those in Amsterdam, France, Portugal, and London. Investors looking for exposure to these markets may want to consider exchange-traded funds (ETFs) backed by these major indexes—or many of its other indexes.
International investors should also be cognizant of the risks associated with investing in the Euronext and its indices. In particular, the stock exchange is reliant on the health of the Eurozone and European Union economies. A downturn in these economies could negatively impact trading activity and revenue for Euronext, as well as the valuation of companies listed on the exchange and the indices composed of these equities.