Dec 04, 2019
Published: 4 December 2019 Product in focus: ETFS EURO STOXX 50® ETF Key Points As the chance of a no-deal Brexit becomes less likely and the UK looks set to leave EU in the next three months, the uncertainty that’s been overshadowing the European market for the last three years may soon be over. With the U.S. and China signalling they’re making progress to end their trade disputes, this could also offer some reprieve for the Eurozone’s economy, which has been a key victim of the U.S.-China trade war. ETFS EURO STOXX 50® ETF (ETSX) provides an investment proxy for those who believe these uncertainties will soon be alleviated, as the underlying economy of the Eurozone is deeply tied to both geopolitical events. Brexit May Come Soon Since the referendum held in June 2016, Brexit has remained in murky waters. In the latest turn of events, the EU has agreed to grant the UK another extension for three-months, however, given the frustration expressed by many leading EU countries, we expect this to be the last extension. Solving the deadlock around the Irish boarder is presenting a significant challenge for the UK parliament and EU to agree on. As such the UK may end up leaving the EU without a withdrawal agreement. Nevertheless, once Brexit happens, with or without a deal, the Eurozone will have one of its biggest overhanging uncertainties removed. Brexit has not been a good showcase to inspire other Eurozone countries to follow suit. The result of the European Parliament election held in May showed that although the uprising right-wing parties have seized more seats than ever before, the parliament is still firmly controlled by the pro-EU forces, while the next EU Parliament election won’t happen until 2024. We therefore expect a smoother ride for the Eurozone going forward, with other countries attempting their own Brexit seeming unlikely. Trade Wars and Europe President Trump started a big trade war with China and a mini-trade war with India, whilst also threatening to place tariffs on auto parts from Europe and Japan, although he is yet to act on these threats. America’s trade wars have caused havoc to the global economy and have already begun to harm America’s own economy. Investors who expect to see the U.S. unwinding more of its tariffs may invest in the eurozone, as it’s a good proxy for improving international trades. So how much damage has the U.S. trade wars brought to the Eurozone? Despite the U.S. not directly imposing tariffs on goods from the EU, the Eurozone economy has been affected by decreased trade and capital flows. Exports made up 46% of the Eurozone bloc’s output in 2018, compared to 12% of the United States’ and 19% of China’s, according to the World Bank. Looking into Germany, the biggest economy within the EU, the manufacturing PMI of the country has dropped from the 63.3 in December 2017 to the most recent 41.9 in October 2019, indicating that the manufacturing sector has been weakening for a while and is now in the contraction zone. Trade Talks Begin to Yield Results The most recent development of the U.S.-China trade war was a positive one. Following the meeting between the U.S. trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin with Chinese Vice Premier Liu He, both the U.S. and China had signalled the two countries are close to reaching a “phase one” trade deal. A resolution to the trade wars could see a boost to the economy of the Eurozone given their reliance on and recent decline in international trade. Fund in Focus: ETFS EURO STOXX 50® ETF (ESTX) ESTX is designed to provide a blue-chip representation of super sector leaders in the eurozone. ESTX can be used as a tool for a tactical play for investors who believe the day for Brexit and the U.S.-China trade war resolutions are just around the corner. Name ETFS EURO STOXX 50® ETF ASX Code ESTX Management Fee 0.35% Benchmark EURO STOXX 50® Index Inception Date 19/07/2016 Distribution Frequency Semi-Annual
Mar 14, 2019
Europe Stacks up Despite Brexit Product in Focus: ETFS EURO STOXX 50 (ESTX) Brexit uncertainty has impacted on investor sentiment towards Europe . However there are multiple indicators that the negativity around the rest of Europe has been overdone . EURO STOXX 50 up 9.4% year to date in line with S&P 500 . Europe will always be a core part of investor portfolios. Perhaps now is a good time to allocate? Uncertainty surrounding the protracted Brexit negotiations has seen many investors shy away from European equity markets in favour of higher returns in the US. Yet, with the US economy looking increasingly vulnerable to a slowdown, it might be time for your clients to refocus their sights on Europe – 20% of the world’s GDP. Why have Australian Investors Been Wary of Investing in Europe? Economic conditions in Europe have been surprisingly resilient throughout the political to-ing and fro-ing that has accompanied Brexit. European stock prices, however, have lagged their US counterparts. In 2018, the primary benchmark EURO STOXX 50 Index fell by around 14.3%, compared to a decline of just 6.2% by the S&P 500 during the same period. Poor performance by banking and auto stocks due to jitters around interest rates and tariffs, respectively, were the primary factors depressing European markets last year. Investor sentiment on Europe has been dampened by a range of factors. The cloud over Brexit, and its likely impact for the UK and continental Europe, is the obvious culprit. Ongoing budgetary conflict between Italy and the European Union, fears of an escalation in global trade wars and speculation on when the European Central Bank will raise rates, have also weighed heavily. But Do These Fears Stack Up? So far in 2019, it is a different story. The EURO STOXX 50 is up 9.4% year to date, tracking similarly to the S&P 500 (also up 9.4%) and relative valuations look more attractive. The euro is also approaching two year lows, which could provide a boost to Europe’s export sector. There are also suggestions that underlying economic conditions in the powerhouse economies of Europe are stronger than sentiment would suggest. This view is supported by the release earlier this month (March) of the Markit Eurozone Composite PMI numbers for February which were revised upwards to 51.9, the first increase (albeit slight) in private sector activity in three months. The PMI index tracks business trends across manufacturing and services based on data from over 5,000 companies. Another sign that the negative sentiment around Europe might have been overdone is the Citibank European economic surprise index. This index (which measures data surprises relative to market expectations) while still in negative territory, has been ticking upwards since the beginning of the year. Emotions Do Not Equal Facts The tendency for sentiment to run at odds with economic reality was raised recently by Martin Beck, chief economist at Oxford Economics. He spoke of the “the difficulty of separating emotion from hard economic developments in driving survey responses” during times of high uncertainty. A number of factors underscore the view that Brexit uncertainty is having a disproportionate impact on investor sentiment. Unemployment across Europe continues to fall and is at 10 year lows, wages growth has picked up and German retail sales rebounded in January, rising more than 3%. ….And What About BREXIT So how great are the Brexit risks for European stock performance? Certainly the economic fortunes of the UK are deeply entwined with those of the EU. The UK is among the EU’s three largest trading partners, accounting for about 13% of its trade in goods and services. While Brexit uncertainty has been damaging for both the UK and the Eurozone, the worst case ‘no deal’ scenario is likely to hit UK companies much harder than their European counterparts. The IMF has forecast that a no deal Brexit could result in a 4% hit to the UK’s GDP BY 2030 should Britain end up adopting the default World Trade Organisation rules for its trading relationships with the EU. The two countries with the largest weighting in the EURO STOXX 50 index, France and Germany by comparison are expected to suffer declines of only 0.2% and 0.5% of GDP, respectively. Meanwhile, a more benign Brexit scenario preserving access to the single market but not membership of the customs union would have only “negligible” impact on output and employment for the EU, according to the IMF. The ultimate consequences of Brexit for both the UK and Eurozone countries, however, are likely to take many years to materialise and will depend on whatever shape any eventual deal takes. Europe Without the UK - ETF Securities’ EURO STOXX 50® ETF As with any late cycle investment strategy, the key to any European foray is to focus on quality companies with strong earnings track records. To this end, Europe offers some of the world’s most prestigious blue-chip names. The EURO STOXX 50, includes the 50 largest and most liquid stocks operating in the Eurozone. The top 10 stocks in the EURO STOXX 50 Index (which is updated annually) are Total, SAP, Sanofi, Linde, Allianz, LVMH Moet Hennessy, Siemens, Unilever, ASML Holdings and Banco Santander. For investors looking to gain exposure to Europe, exchange traded funds offer a way to gain widespread diversification at a low-price. The ETFS EURO STOXX 50® (ESTX) offers broad based exposure to the 50 largest companies across the Eurozone by tracking the performance of the EURO STOXX 50 Index. For the year to date, ESTX is up 8.0% (in AUD). Source: Bloomberg data as at 11th March 2019
Mar 22, 2018
Eurozone Outlook for 2018 Trade idea – ETFS EURO STOXX 50® ETF (ESTX) Economic growth in the eurozone is at the highest level in a decade and the outlook is positive for 2018. ECB stimulus remains intact as inflation remains subdued and the euro continues to strengthen. Political headwinds tapered significantly in 2017, though some hurdles remain on the radar. ESTX provides low cost exposure to the blue-chip eurozone companies driving European growth and offers unhedged upside to a further strengthening euro. In this week’s ETFS Trade idea, we look to the European economic and political outlook for 2018 and highlight potential opportunities as well as some challenges on the horizon. Eurozone economy growing at fastest pace in a decade European data continues to paint a picture of an economy on the up, with positive momentum predicted to carry into 2018. Eurozone GDP grew at a rate of 2.7% in 2017 and the outlook remains positive, with the IMF forecasting growth to remain above 2% for at least the next two years. Moreover, while much of the initial impetus had come from the powerhouses of Germany and France, the periphery has now started to follow suit. Labour markets are looking strong, with unemployment across the region continuing to plummet and wage growth picking up. Despite slipping slightly in February, sentiment remains high, with economic and consumer confidence both at levels last seen in 2001. PMI data remains positive and there are signs that excess capacity is shrinking as economic growth gathers pace. Monetary policy outlook remains stable In the face of an expanding economy, the monetary policy outlook is surprisingly stable. Monetary stimulus in the form of the ECB’s unprecedented asset-buying programme is likely to remain. Inflationary pressures appear subdued, with CPI falling from 1.5% in November to 1.4% in December, well below the ECB’s target level of 2%. The strength of the euro is also aiding the stimulus impact by reducing inflationary pressure from imported goods. In US dollar terms, the euro has appreciated by over 17% since the start of 2017. In historical terms, the currency is currently sitting close to its long-term average level, and many analysts are predicting further appreciation in 2018. Political risks remain on the horizon Political risks, so prominent in the European dialogue over the past decade, took a back seat to the improving economy in the second half of 2017. French, Dutch and German elections took place without major incident as the anti-EU populist threat appeared to dissipate. Italian elections last week saw a move away from the establishment parties. Whilst details on policy directions have yet to emerge, the equity markets in Italy and across Europe have reacted positively this week. Other risk events likely to have a bearing on the shape of Europe this year include the ongoing Brexit negotiations and developments in the Catalan push for independence. How to invest in the eurozone? ETFS EURO STOXX 50 ETF (ESTX) is well positioned for investors for the following reasons: ESTX captures the performance of the 50 largest corporations in the eurozone – all significant global players in their fields. ESTX tracks the world’s most widely traded European benchmark index – the EURO STOXX 50 Index. ESTX is unhedged with respect to currency movements; meaning that investors benefit from a strengthening euro or weakening Australian dollar and vice-versa. No UK companies are included in ESTX, making it somewhat Brexit remote compared to other panEuropean funds. ESTX is the joint lowest cost Europe-focused ETF on the ASX with an MER of 0.35% p.a. ESTX is domiciled in Australia so there are no W8-BEN tax forms for investors to complete and US estate tax is not applicable ESTX has Recommended rating by Lonsec.
Oct 30, 2017
Europe Playing Catch Up ETFS Trade idea – ETFS EURO STOXX 50® ETF (ESTX) The European Central Bank’s (ECB) proactive approach is helping aid Europe’s economic recovery Lending growth is on the up The ECB wants a weaker euro which will support many of the multi-nationals in the EURO STOXX 50, who generate a majority of their revenue offshore ETFS EURO STOXX 50 ETF (ESTX) provides low cost access to European stocks without any UK exposure. This ETF was rated Recommended by Lonsec Whilst we focus on what Trump will tweet next, what new high the Dow will hit, or how long the Australian market can continue moving sideways, Europe has quietly been going about its business, continuing its recovery phase. This recovery has been aided by the ECB’s proactive approach and a stabilising geo-political environment. What should investors be looking at in Europe? What are the ECB doing? Last week on Thursday the ECB met market expectations for tapering its bond purchase program. Globally markets responded positively. For the day at close of markets on Thursday 26th October: o EURO STOXX 50 Index was up 1.3% o DAX was up 1.4% o Positive news from the ECB had a spill-over effect on the S&P 500 which was up 0.2% Show me the money Analysing Eurozone M3 data for September, lending growth is extending: o Lending to corporates rose to 2.5% y/y o Mortgage lending rose to 2.4% y/y o Consumer credit growth steady at 6.7% M1 (good indicator of transactions demand for money) in September rose to 9.7% y/y from 9.5% y/y in August Recent European reporting season Whilst the Australian reporting season was somewhat uneventful, the recent European season showed that the region is recovering strongly: Is Europe over or undervalued? The EURO STOXX 50 is still cheap when looking at valuations against other broad indexes Europe earnings also show that it has much greater catch-up potential The ECB wants a weaker euro The ECB’s concern about a rising euro will see it continue to adopt a dovish stance, as seen in last week’s policy announcement The ETFS Research team believe that any spikes higher in the euro are temporary and that the market has largely priced in tapering of the ECB’s bond purchasing program A weaker euro will support many of the multi-nationals in the EURO STOXX 50 that generate a majority of their revenue offshore Below chart shows a breakdown of the geographic revenue exposure of the EURO STOXX 50 and the S&P 500 Given the continued revival of Europe, the ETFS EURO STOXX 50 ETF (ESTX) is well positioned for investors for the following reasons: no inclusion of UK companies means fallout from Brexit negotiations is reduced the proportion of revenue generated offshore is close to 50% meaning a weaker euro could be a positive scenario for many of the constituent companies ESTX is the lowest cost Europe-focused ETF on the ASX with an MER of 0.35% p.a ESTX is domiciled in Australia so there are no W8-BEN tax forms for investors to complete and US Estate Tax is not applicable Recommended by Lonsec
Jul 06, 2017
European monetary policy in the spotlight ETFS EURO STOXX 50® ETF (ESTX) Key Takeaway: Despite Draghi’s hawkish statements, Europe’s economic indicators still point to a strong continuing recovery with levels over and above Australia, the US and the UK. In this week’s ETF Securities trade idea we look at key economic indicators released in June across the eurozone as well as looking ahead to the potential end of monetary stimulus, as hinted by the European Central Bank last week, and what that means. Manufacturing in the Eurozone - In June manufacturing in the eurozone continued to expand at pace, with Markit’s eurozone manufacturing PMI indicator of factory activity moving to its highest level since April 2011, pointing to a significant increase in GDP growth in Q2. Germany led the way, but even Greece showed signs of expansion during the month. Composite PMI, combining manufacturing and services, dipped, but remained strong, as shown in Figure 1. Eurozone GDP Growth for Q1 2017 was at 0.6% for the quarter, well above the levels seen in the UK at 0.2%, the US at 0.45% and Australia at 0.3%. In an annual basis, as shown in Figure 2, the eurozone had gained significant ground in recent years. Unemployment held firm at 9.3% in May. While the headline rate is still historically high, it has decreased by a full percentage point in just 15 months and is down from a peak of 12.1% less than four years ago, as shown in Figure 3. Inflation figures released at the end of last week disappointed and clouded the picture somewhat. Headline CPI fell back to 1.3% in June, having peaked at 2.0% in February, as shown in Figure 4. Core CPI, which exclude the volatile energy segment, rose to 1.1% providing some evidence for those looking to frame a reflationary argument. The end of monetary stimulus in the eurozone? Hawkish comments from ECB president, Mario Draghi, last week hinted at the end of monetary stimulus in the eurozone. Although the implications were later watered-down, the market’s reaction to the possibility of near-term tapering was reminiscent of the 2013 US taper tantrum; the euro leapt to a 16 month high, German 10 year Bund yields rose to an 18 month high and the EURO STOXX 50 dropped 2.9% for the week. Sustainability The episode has raised questions as to whether the region’s recovery is sustainable or a result of the extraordinary stimulus measures implemented over the past two years. Cautious statements that followed suggest that stimulus will remain in place for some time, which should be positive for equity markets. Alternatively, as shown in Figure 1, a rising-rate environment has also historically coincided with strong equity market performance over the longer-term. What does this mean for investors? Investors wishing to take a view and add Europe to their portfolio may consider using ETFS EURO STOXX 50® ETF (ESTX), the only ETF in Australia tracking Europe’s leading blue-chip index. ESTX offers unhedged exposure to the eurozone with a management fee of 0.35% per annum.