Lucy CHONGLEZ

Individual coursework
Analysis of an asset of EUROSTOXX 50
 Lucy CHONGLEZ

Introduction

As part of the advanced finance course, we were asked to select from the 50 companies in the
EUROSTOXX 50 index to analyze an asset. I went to the luxury group LVMH - Moët Hennessy Louis
Vuitton, led by Bernard Arnault, because I realize the potential of the luxury industry. I've always been
interested in the luxury industry and I'm surprised to see that LVMH - Moët Hennessy Louis Vuitton is in
the top 3.

Indeed, LVMH - Moët Hennessy Louis Vuitton is the world leader in luxury products. The breakdown of
sales by product group is as follows; fashion and leather goods (33.9%), wines and spirits (12.8%),
perfumes and cosmetics (10.8%), watches and jewellery (9.1%) and, other (1.6%).

The Euro Stoxx 50 is the benchmark index for euro area markets. Like the CAC 40 for France, the Euro
Stoxx 50 groups 50 companies according to their market capitalisation within the euro zone.

It was created in 1999 based on the 50 European companies most representative of the euro area
countries. The Euro Stoxx 50 thus measures the average performance of these larger companies, which
are selected from 18 different economic sectors. Among the 50 listed companies in the euro area are
listed companies:

- 19 French companies (Air Liquide, Airbus, AXA, BNP, Carrefour, Danone, Essilor, GDF Suez, Société
Générale, L' oréal, LVMH, Orange, Saint-Gobain, Sanofi, Schneider, Total, Unibail, Vinci, Vivendi)
- 14 German companies (Allianz, BASF, Bayer, Bayer, Bayerisch Motoren, Daimler, DeutscheBank,
Deutsche Post, Deutsche Telekom, E. ON, Munich Re, RWE, Sap AG, Siemens AG, Volkswagen)
- 6 Spanish companies (Banco Bilbao, Banco Santander, Iberdrola, Inditex, Repsol YPF, Telefonica)
- 5 Italian companies (Assicurazioni Generali, ENEL, Eni, Intesa SanPaolo, Unicredit)
- 4 Dutch companies (ASML, ING Group, Philips, Unilever)
- 1 Belgian company (Anheuser-Busch Inbev)
- 1 Finnish company (Nokia)

"Capitalization is a financial investment vehicle. It consists of integrating the interest generated during a
given period into the initial invested capital. The interest for the following period will then be calculated
on this new capital and so on until the end of the investment".
 Lucy CHONGLEZ

Macroeconomic analysis

We will make a macroeconomic analysis of France. Indeed, it is the country in which the company
operates mainly. We will use the following factors; money supply, inflation rates, unemployment rates,
production and GDP indicators.

Money supply

𝑴 ↗ → 𝑴⁄𝑷 ↗ → 𝒓 ↘ → 𝑰 ↗ → 𝒀 ↗ → 𝒖 ↘ → 𝑷 ↗

Following the graph, we can see that the trends of the money supply increase. So, we can suppose that
it will continue to increase. So, the total amount of money in circulation or in existence in France will
increase. It causes by an expansionist monetary policy which can be applied through the intervention of
the government, or various fiscal measure (for example, the increase in the interest rate).

Thanks to the interest rate applied by the central bank or through the mandatory reserves imposed on
commercial banks. In these cases, an increase in the money supply, ceteris paribus, will cause a decrease
in average interest rates in an economy. And, if the interest rate decrease, the Investment will be
increase! Because there is a relationship between them. And, the consequences will be the increase of
the total income. If the income increases, there will be some consequences on the unemployment rate
and then the price.
 Lucy CHONGLEZ

Inflation rates

𝒑𝒆 ↗ → 𝒘 ↗ → 𝒑 ↗ → 𝑴⁄𝑷 ↘ → 𝒓 ↗ → 𝑰 ↘ → 𝒀 ↘

Through this graph we can see that inflation in France is likely to increase. This increase in the inflation
rate will in this way increase the prices of all goods and services. Inflation will therefore lower people's
purchasing power. As a result, companies will increase workers' wages to compensate for this decline in
purchasing power. This increase in wages is a cost from the point of view of the companies, and to
remedy this problem, they will increase the price of their products.

This situation will create a deficit of the money supply in relation to the demand for money. Interest
rates will be high, which does not encourage households to consumer credit and therefore investments
will decline. As investments decrease, incomes will also decrease.
 Lucy CHONGLEZ

Unemployment rates

𝒖 ↗ → 𝒘 ↘ → 𝒑 ↘ → 𝑴⁄𝑷 ↗ → 𝒓 ↘ → 𝑰 ↗ → 𝒀 ↗

Indeed, we can instinctively assume that the unemployment rate tends to rise. Increasing competition
for jobs and increasing available labour force will decrease the wages. This increase in wages will
decrease prices, which will increase the money supply. This increase in the money supply will decrease
the interest rates, which will encourage people from investing. And so, the revenues will globally
increase.

France has an extremely high unemployment rate, especially among under-25s. Young people have
great difficulty entering the world of work. The reasons for this unemployment are varied, such as the
end of the fixed-term contract, which is the main reason for enrolling in the “Pôle emploi”. Of course,
these are only assumptions.

The activity rate of people aged 15-64 was almost steady at 71.9 percent (from 72 percent in the June
quarter). Over a year, it increased by 0.3 percentage points. Among inactive people, 1.4 million persons
wished to work without being considered as unemployed according to the ILO definition: they made up
the halo of unemployment. Their number fell by 59,000 compared to Q2 2017 and by 62,000 over a
year.
 Lucy CHONGLEZ

Labour cost and productivity

𝑪𝒐𝒔𝒕 ↘ → 𝑷 ↘ 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 ↗ → 𝑴⁄𝑷 ↗ → 𝒓 ↘ → 𝑰 ↗ → 𝒀 ↗

In France, productivity is increasing but labour costs are also rising. This is probably since the workforce
in France is highly qualified. Indeed, skilled labour also means higher labour costs.

The productivity chart is going to increase. It means that companies need less cost to have the same
quantity of output. As companies spend less to produce the same amount (see more), the company
ends up with more money to invest. The increase in the volume of the money supply encourages the
agents to consume or to invest. When the money supply is large, it generates economic activity and
growth but also inflation (due to overheating of the economy).
 Lucy CHONGLEZ

Government debt to GDP

𝑮 ↗ → 𝒀 ↗ → 𝒖 ↘ → 𝑷 ↗ → 𝑴⁄𝑷 ↘ → 𝒓 ↗

Firstly, it’s important to know that France recorded a government debt equivalent to 96 percent of the
country's Gross Domestic Product in 2016. Government Debt to GDP in France averaged 56.07 percent
from 1980 until 2016, reaching an all-time high of 96 percent in 2016 and a record low of 20.70 percent
in 1980.

Following the graph, we can see that the trends of the Government Debt to GDP increase. So, we can
Suppose that it will continue to increase. Firstly, in economics, the debt-to GDP ratio is the ratio
between a country's government debt and its gross domestic product (GDP). A low debt-to GDP ratio
indicates an economy that produces and sells goods and services sufficient to pay back debts without
incurring further debt. There is an increase of this ratio in the case of the Canada. Secondly the
Government Debt is a variable of the formula to calculate Y. So, in the case of Ceteris paribus, If G
increase, Y increase too. If the income increases, the unemployment rate decrease and the price
increase. The consequences of the increasing of the price. It will be the fact that the monetary supply
decrease and the interest rate increase.
 Lucy CHONGLEZ

Technical analysis
 Lucy CHONGLEZ

Fundamental Analysis
 Lucy CHONGLEZ

Conclusion
 Lucy CHONGLEZ

Bibliography

http://www.journaldunet.com/business/dictionnaire-economique-et-financier/1198665-capitalisation-
definition/

https://www.cafedelabourse.com/lexique/definition/eurostoxx

http://www.strategie-bourse.com/indice-euro-stoxx-50.html

(chercher infos, les présenter, avantages, chef

Expliquer Eurostoxx, qu’est ce que ? (capitalization, criteria, countries)