AEX reaches highest level ever. Is a major correction inevitable?

AEX reaches highest level ever. Is a major correction inevitable?

20 April 2021Reading time: 3 minutes

On April 1, the international day for jokes and pranks, a very serious record was broken on the Amsterdam stock exchange. At the end of March this year, the AEX already exceeded the limit of 700 points and a couple days later the Amsterdam main index broke the old record of 701.56 points that dates from September 2000.

Why a new record at this time?

The index's new record is taking place at a time of great economic disunity. On one hand, sectors such as the travel industry are in great uncertainty, while the chip industry is experiencing golden days.

After the stock market crash in March 2020, the AEX recovered to its current level at lightning speed.
It is striking that this recovery was not so much supported by the traditionally "safe houses" such as Royal Dutch Shell, Unilever or Heineken. It was mainly the companies that took full advantage of working from home and the explosive increase in the number of online orders. Big winners within the AEX included Adyen with a stock price increase of 157% in one year and chip machine manufacturer ASML, whose share price doubled in one year.

At the same time, the AEX also benefited from a large influx of new investors. Never before have so many Dutch households started investing in mainly Dutch equities. The low interest rates on saving accounts and limited consumption options are the main reasons for this.

Anticipate economic recovery

A more recent driver behind the climbing AEX is the global vaccination program, which means that investors are already anticipating a recovery of the Dutch and global economy later this year. The IMF supports this sentiment and expects the Dutch economy to grow by 3.5 percent this year and for the world economy the institute is even counting on a growth of 6 percent.

However, there are quite a few snags to this expectation. While many companies may open their doors again after the lockdown, this will go hand in hand with phasing out the fiscal government support. The question is whether this will eventually lead to an increasing number of bankruptcies and job losses.

AEX is becoming a tech index

During the annual rebalancing at the beginning of this year, Galapagos and ABN AMRO had to make way for BE Semiconductor Industries and lighting company Signify. The disappearance of ABN AMRO in particular came as a surprise to many investors. However, this is in line with the trend that the AEX is slowly transforming into a so-called tech index. Last year, Vopak and Aalberts Industries had to make way for ASMI and JustEatTakeaway.com.

Since the record on April 1, the AEX has increased even further and is now (09.04.2021) at 713.53 points.

The future price of the index is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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14/05/2021 03:35:45