The stock market is going strong. The AEX has already risen by 28 percent this year. And for investors, there is also the dividend, the part of the profit that is paid out to shareholders. That’s about a percent or three.
At the end of March, the AEX finished above 700 points for the first time in a long time and now we are another 100 points higher. It is of course true that an increase from 700 to 800 points is relatively smaller than an increase from, for example, 500 to 600, in other words: every next limit of 100 points is easier to achieve.
AEX is doing great
The AEX has outperformed the broad American S&P 500 index so far this year, which rose about 18 percent. The AEX contains a large number of tech funds that have performed excellently this year.
For example, chip machine maker ASMI is more than twice as high as at the beginning of this year and heavyweight ASML (another chip machine builder) is 91 percent higher. The AEX has recently become more and more a tech index and tech stocks have been doing very well for some time.
Round number, nothing more
But what does it say now that we are above 800 points? “It’s a round number, people love it, but otherwise the limit of 800 points means nothing at all,” says Bob Homan, head of investments at ING.
“The Dutch stock market is not controlled by Dutch investors, the AEX simply moves along with the international stock exchanges,” he says. If they go up, Amsterdam goes with them.
‘Concerns underlying equities’
Investors look more at international stock markets, but if, for example, the US-wide S&P 500 index is on a round number, then that in itself says nothing, according to Homan.
In addition, it is the underlying stocks, such as ASML, Philips, Shell and Unilever, that determine the position of the AEX, according to Homan. “And they’re not on a round number at all.”
‘Especially for Dutch private individuals’
Furthermore, the AEX has little relevance for professional investors, adds Errol Keyner, deputy director at the VEB, the association of private investors. “They look to the Eurostoxx 50 for European equities. It is fun for Dutch private investors to follow, because you are Dutch.”
He also refers to heavyweight ASML, which has pushed the stock market up considerably with a price increase in the year so far of more than 80 percent. If a stock that weighs much less heavily in the index does just as well, it will add up much less.
‘AEX has become cheaper’
Despite all that, reaching the 800-point mark can spark a discussion about whether things are going too fast, says Homan.
He doesn’t think so himself. It has indeed gone fast this year, but the shares of companies in the AEX have even become a bit cheaper this year, he says.
Profits rose more than prices
For example, the AEX has already risen by 28 percent, but the profits of AEX funds in the first six months have already increased by 51 percent, according to Homan. And for 2021 as a whole, the market expects profit growth of no less than 67 percent compared to last year.
Of course, 2020 was not such a good year for many AEX companies, but nevertheless Homan does not think the valuation of AEX companies is overstretched.
In addition, expectations for profit growth of AEX companies have risen this year compared to previous estimates. Homan also thinks that interest rates will remain low and low interest rates are good for most stocks.