The STOXX Europe 600 Index is regarded as a broad-based barometer of the European equity market. Compromised of 600 companies from 17 countries and 11 different sectors, the index covers almost 90% of the investable market in developed countries in Europe. The STOXX Europe 600 Index, which was launched in 1998, is currently on a roll, surging upwards at the end of January and thereby ending a brief upside consolidation. The momentum of European equities – the STOXX Europe 600 Index has been performing significantly better than the US barometer, the S&P 500, recently – has several causes. What is clear is that investors are really fighting for shares in companies based in Europe. In January 2025, inflows into European equity funds reached their second-highest level in a quarter of a century.
Many investors who had not anticipated this lightning start may now be asking themselves whether it is worth getting on board. In addition to the momentum, the relatively low valuations and the good operational shape of leading European companies also speak in favour of investment. Heavyweights such as SAP, Nestlé and HSBC were among those delivering strong results and optimistic outlooks in the latest reporting season. There are risks too, however. To give an example, delays in forming a government in Germany, perhaps even a failure to do so, could dampen investor optimism. Another danger comes from US trade policy, with President Donald Trump having just announced new tariffs on imports from the EU. Monetary policy is also likely to remain a factor: now markets are expecting the ECB to loosen the brakes further, but this presupposes that inflation will decline. In January 2025 the annual rate of inflation for the eurozone was 2.5%, 0.1 percentage points above the figure for the end of 2024.
One possible answer to the various imponderables is the Bonus Outperformance certificate on the STOXX Europe 600 Index. On the one hand, this structured product makes it possible to participate in a continued upward movement of the European equity market. Leonteq has configured the certificate with a disproportionate upside participation of 150%. Assuming the broadly diversified underlying appreciates by 50% in the next three years, the product would yield a return of 75% on maturity. On the other hand, there is partial protection on the downside: as long as the STOXX Europe 600 Index does not fall to or below the barrier of 69% of the starting level during the term, the redemption corresponds to at least the bonus level of 100%. Aside from the ancillary costs, in the worst case the investment would end up as a zero-sum game even if there were a correction in the European markets.
The attractive risk-opportunity profile is made possible by a “waiver”, in that investors do not paricipate in the dividends of the stocks contained in the underlying. It is also important to know that the repayment mechanism outlined only kicks in at the end of the term. Until then, the certificate can trade at below the bonus level even though the barrier has not been breached. Alongside the performance of the STOXX Europe 600 Index, the price of the structured product is also influenced by the dividend level, volatilities, and interest rates. All in all, the Bonus Outperformance certificate gives investors an opportunity to tap into the investment trend in a diversified and partially protected form: Europe is back, and right now it seems to be favoured by some asset managers over the stock market heavyweights from the USA.
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