Wednesday, 6 November 2013

Investing in the Netherlands AEX

The third economy in the EFA I've investigated is The Netherlands:

The Netherlands Economy & Equity Investment
The Netherlands (Part of the Kingdom of The Netherlands)
Population (2012)
16.79 million
Euro (EUR)
2012 GDP
US $709.5 billion
2012 GDP Growth
-0.5% (real)
IMF GDP Growth Prediction for 2014
0.3%  (-1.1% predicted for 2013)
8.7% (July 2013)
3.2% (June 2013 YOY)
Budget Deficit/Surplus
Positive €24.3 billion (2012)
Currency Rate
EUR/USD 1.38
IMF CPI Growth Prediction for 2014
2.9%  (1.3% for 2013)
Main Sectors of Economy
Service 73.2%, Industry 24.1% (Exports of goods & services accounted for 78% of GDP in 2012)
Main Exports

Machinery & equipment, chemicals, fuel, foodstuffs
Main Export Partners
Germany   26.3%
Belgium   14.1%
France   8.8%
Main Imports
Machinery & transport equipment, fuels, chemicals, foodstuffs
Main Import Partners
Germany   13.9%
China   12.0%
Belgium   8.4%
Main Stock Exchange
Market Cap
€594.7 billion (2011 CIA database)
Market Performance YTD

Netherlands Exports

·         Although only 2% of the population is employed in agriculture; The Netherlands are the second largest agricultural exporter in the whole world, after the USA
·         The Nethelands’ economy is currently in recession. In July consumer spending was down 2.2% from 12 months before, and corporate investment down 9.4%. Unemployment has risen steadily since the financial crisis
·         As the Netherlands relies heavily on foreign trade, it’s GDP is also tied to the strength of the Euro, which it doesn’t have much control over.
·         Inflation did decrease in September to 2.4%, down from 2.8% in August, although Dutch inflation levels have been substantially above the Eurozone average for some time.
·         The Netherlands does have some notably big companies such as Royal Dutch Shell; the largest company in the world.
·         The 5 biggest Dutch public companies are: Royal Dutch Shell (RDSA:AEX) –Oil exploration, production & refining; ING Groep (INGA) – Financial; European Aeronautic Defence and Space Company (EADS) – Everything it says in the name; Lyondell Bassell Industries – Chemicals; Aegon – Financials
·         The AEX is operated by NYSE Euronext, created in the last decade by Dutch Exchange, French Exchange, LIFFE & NYSE mergers and acquirements. It experienced drop in 2008 along with other countries and has been more historically volatile than the FTSE, partly because of its size & links to other indexes operated by NYSE Euronext.  
·         AEX has enjoyed a 16.69% increase in the year to date

·         iShares AEX UCITS ETF (IAEX) is a physical ETF that tracks the AEX as closely as possible. It offers exposure to the 25 most traded stocks on the AEX
·         SPDR AEX Index ETF also buys physical stocks on the AEX in a proportionate weighting to their percentage of the index.

My Outlook on The Netherlands Investment
The Netherlands has been in recession since mid-2012 and has been experiencing a steady increase in unemployment. Although the Netherlands is very export orientated, its main export partners are in the Eurozone, so a strengthening Euro would be beneficial by increasing the purchasing power of the Netherlands and decreasing the cost of imports in real terms. Continuing cuts in government spending and the deleveraging of households will continue to dampen growth & with the currently stronger Euro against the Dollar curbing foreign investment, The Netherlands economy is in danger of stagnating. In regards to an AEX tracking ETF, I would be very slightly bullish as Europe gradually recovers, but I don’t think growth would outpace inflation by very much in the next year.

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