Brexit uncertainty, Germany on the brink of a recession, demanding trade deal with the US and most recently the Italian Prime Minister resigning have all been factors for why the European equity market has had a devastating August so far.
The iShares STOXX Europe 600 UCITS ETF, which is comprised of the 600 largest companies in Europe by market cap, has been significantly affected by the geopolitical events which have taken place in the second half of 2019. Despite having a year-to-date return of 14.9%, it has seen its Net Asset Value fall 3.4% since the beginning of the month.
A number of its largest holdings from different sectors have seen their share prices fall significantly such as Royal Dutch Shell and HSBC which have slid 11.8% and 9.1%, respectively.
The German central bank Bundesbank announced earlier this week that the likelihood of the country going into a recession is ever more likely following poor exporting statistics and low industrial production. This could get even worse for Europe’s biggest economy as the US threatens to implement tariffs on automobile goods, one of Germany’s biggest exports.
The iShares STOXX Europe 600 Automobiles & Parts ETF is dominated by German stocks which comprises 55.8% of the fund. As a result of this large exposure, the ETF’s NAV has fallen 9.0% so far this month.
Other sectors within Europe which have struggled in August include technology, energy, banking and materials.
ETFReturns (Aug 1 – Aug 20)SPDR MSCI Europe Technology UCITS ETF (WTEC)-3.7%iShares STOXX Europe 600 Oil & Gas ETF (SXEPEX)-7.4%Lyxor EURO STOXX Banks UCITS ETF (BNKE)-8.2%SPDR MSCI Europe Materials UCITS ETF (STPX)-7.8%
Within Bundesbank July report announcing Germany’s economy heading towards a recession, it does highlight household spending has remained high. While interest rates are low, banks have seen an increase in consumer lending as well.
Consumer staple and healthcare ETFs are just two of the few sectors which offer positive returns so far this month albeit relatively low. The SPDR MSCI Europe Consumer Staples UCITS ETF has risen 0.4% so far this month.
Healthcare ETFs have performed slightly better with the Lyxor STOXX Europe 600 Healthcare UCITS ETF climbing 1.8% over the same period.