Industry Updates

Investor concerns over European assets continue

Tom Eckett

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The three ETFs that saw the most outflows across all ETFs listed in Europe last week all offered exposure to the European market as the region continues to worry investors.

According to data from Ultumus, in the week to 25 October, the Deka DAX UCITS ETF (ETFDAX) saw $453m net redemptions, the most across all ETFs.

ETFDAX was followed by the iShares EURO STOXX 50 UCITS ETF (EXW1), which witnessed negative flows of $223m while the SPDR Barclays Euro Corporate Bond UCITS ETF (SYBC) was third with outflows of $157m.

The ongoing Brexit negotiations combined with weaker growth on the continent has caused investors to rotate out of Europe.

Data from the European Union’s statistical agency showed growth in the 19-nation bloc was 0.2% in the three months to September with Germany once again narrowly slipping into a technical recession.

Added to this, last month, outgoing European Central Bank President Mario Draghi cut interest rates to -0.5% and restarted the Bank’s €20bn-a-month bond purchases.

The move was taken by Draghi after eurozone inflation dropped to 0.8%, a three-year low and well below the ECB’s 2% target with the former president predicting for it to slide further in Q4.

There is no doubt incoming ECB President Christine Lagarde has a tough job to inject growth in the region.

Commentators have warned this period of low growth could lead to the “Japanification” of Western economies, where low interest rates support zombie companies.

Kerstin Braun, President of Stenn Group, commented: "This era of persistent low interest rates can be a drag on economies, as we’ve seen in Japan and are now seeing in Europe. Banks have no incentive to loan money, making credit tighter for companies that want to grow."

Elsewhere, the Invesco MSCI Saudi Arabia UCITS ETF (MSAU) once again saw outflows of $155m, the fourth highest across all ETFs listed in Europe.

Saudi Arabia has fallen out of favour with ETF investors in recent times following Fitch Ratings' decision to downgrade the Kingdom’s credit rating from ‘A+’ to ‘A’ on 30 September.

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