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Luxembourg’s highly mixed economy is both advanced and highly ranked among niche economies. The principal contributor to the nation’s economy is its services sector, inclusive of financial services, but the eastern European country is also renowned for its industrial production and steel sector. The economy has provided well for its citizens who currently enjoy the highest gross domestic product per capita ratio in the world. This level of economic prosperity is highly unique for such a small country and Luxembourg is often called the ‘Green Heart of Europe’ because its mix of economically viable businesses are juxtaposed neatly with the country’s rustic backdrop of natural beauty. The country’s economy has even been compared to the German economy because of its highly industrialized production capabilities and strength. This article will cover the financial system of Luxembourg, as well as a range of market information covering currency, futures, and stocks.
show moreLuxembourg’s own stock exchange was incorporated during the 1920’s as an entity named The Anonymous Society of the Luxembourg Stock Exchange. Originally, the exchange issued just over 5,000 shares valued at 1,000 franc per share. Today however, the Luxembourg Stock Exchange is one of the 50 largest stock exchanges in the world with an approximate market capitalization of $63 billion (US). This is a surprising number considering the population of Luxembourg is just under 600,000 citizens.
More recently, the Luxembourg Exchange became the first exchange in the world to boast a platform from environmentally-conscious financial securities. This platform, dubbed the LGX or Luxembourg Green Exchange has a strict list of criteria that equities must adhere to in order to be listed on the platform. Companies must meet the following major points:
The LGX currently accounts for some 1% of the total global debt market which equates to 50% of the so-called green bond market.
The euro is the national currency of the 19 European Union (UN) member states who have adopted it. This list is centered around the stronger economies such as; Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Together, these countries create the EU where their multinational economies are represented as one entity. The currency of these economies is also represented as a single entity called the euro which is widely known as the second most popular currency in the world.
The most widely traded euro pair in the foreign exchange market is the EUR/USD. Thanks to the popularity of both currencies, the pair can be easily affected by many different factors. The interest rate differential sets the tone for the pair’s valuation with the rate being set by the respective central banks of the two economies, the Federal Reserve Bank in America and the European Central Bank in the European Union. Various other factors also influence the US dollar and euro throughout the year, including economic reports and geopolitical news. It is important to note that both central banks also take an active role in maintaining their currency’s value by trading it on the foreign exchange market.
The Maastricht Treaty of 1992 created the singular currency of the European Union, the euro. It would take another seven years for this currency to take effect, although purely for accounting value. In 2002, the euro began circulation as a hard currency issued in both banknotes and coins. However, it would still take some time for the currency to be adopted and accepted all over the EU. Now that it has been widely adopted, the euro integrates a vast number of international economies; so much so that its diversity has become an underlying factor of the currency’s stability while ensuring healthy volatility in the foreign exchange market. The euro is now the second most popularly traded currency in the world, accurately representing the world’s second largest economy. There are currently more than €1 trillion in circulation the world over.
While somewhat mediocre in respect to equities, the Luxembourg Stock Exchange specializes in the international bond market, ranking first within the EU with over 25,000 debt equities listed. The stock exchange was notably the first exchange to list an international bond that is not denominated in the country’s native currency. Eurobond, as it is called, has helped the Luxembourg Stock Exchange hold a dominant position in bond issues, claiming some 40% of all European bond securities.
The equities market in Luxembourg does hold some attractive opportunities if investors desire a higher risk profile in their portfolios. Leading stocks reflect the dominant sectors of the Luxembourg economy. The most highly valued stocks on the European exchange are in the financial services sector, as well as metals and industrial production sectors.
