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Deutsche Bank ETF Research - Quarterly Update: Retreating to Safety
July 12, 2010--Despite strong Q2’10 inflows, falling equity markets take their toll by shaving over 10% off AUM and bringing 2010 YTD ETP market growth to -0.85%
Euro sovereign concerns and worries about the strength of the recovery in the US kept investors scratching their heads about the likely trajectory of equity markets. This situation put the quarterly growth of the global ETP market in negative territory (-0.85% YTD), despite strong cash flows ($44.1 billion) in both the US ($31.6 billion) and Europe (€9.8 billion) and Asia (estimated at $8 billion). The global ETP market shrunk by 4.1% in Q2’10 and experienced its first decline in the past five quarters. This quarter’s decline wiped out the 3.5% increase registered in Q1’10 AUM, bringing the YTD growth below zero at -0.85%.
ETP market growth forecast: European growth rates steam ahead, while falling equity markets shadow expected global growth rates 0f 15%
While we still expect positive growth for the global ETP market for the remainder of 2010, recent economic events lead us to also consider the possibility of growth between 15 and 20% slowing, should equity market declines continue. Global ETP market growth above 15% is still within reach, however, it is less likely as it necessitates both a very strong equity market rally (upwards of 20%) as well as cash flow patterns at or above historical highs ($80-90 billion for the remaining two quarters) for the rest of the year.
The European market continued to defy falling equity markets and strong cash flow patterns contributed to growth of 13.4% 2010 YTD. Growth in this region is expected to comfortably outstrip that of the other two major regions and could reach 25-30% before year end. The US and Asian markets are more likely to grow at rates which could be at half those of Europe, both the US and Asia Pacific regions registered close to flat growth 2010 YTD.
Q2’10 flows continue strong but asset allocation indicates clear shift in risk appetite
While market uncertainty and elevated volatility levels had a profound effect on how ETP flows were allocated among asset classes in the second quarter of the year, on both sides of the Atlantic, the ETP sector continued to see strong inflows totaling $44.1 billion. This level is significantly above the $18.1 billion observed in Q1’10. The majority of the flows (71.7%) came into the US market, while the remaining (28.3%) came to the European market. The proportion of the flow allocation, relative to AUM, points that the European market received (relative to its size) higher inflows (US: $779 billion (72%), Europe: $236 billion (21.8%), despite the falling Euro/US$ exchange rate.
Equity flows, while positive, continued to decline over Q2’10. The month of May registered net outflows of $250 million in the US market, while in Europe, the exit from equities was more pronounced in June with €3.2 billion of outflows. Fixed income registered strong inflows in both territories (US: $ 10.7 billion, Europe: €3.1 billion), with large allocations to sovereign benchmarks, despite sovereign solvency concerns in Europe.
The biggest flow-related story was gold. Q2’10 global gold ETP inflows easily surpassed the cumulative gold inflows of the past five consecutive quarters put together and reached $11.6 billion (US: $8.3 billion, Europe: €2.8 billion). Taking into account AUM at the beginning of Q2’10, gold ETPs in Europe were more popular than in the US as they experienced a quarter-over-quarter increase of 43%, to €20.4 billion from €14.3 billion. The real increase is higher, as the price of gold is quoted in US$ and the Euro depreciated over 10% against the US$ over Q2’10. In the US, for the same period, the gold ETP segment rose by 23% to $58.0 billion from $44.4 billion.
European off-exchange ETP trading gathers pace
While to many an oxymoron, it is nevertheless a reality. The combined ETP turnover that takes place off-exchange (within ancillary exchange OTC platforms) in the three of the major European exchanges (Deutsche Borse, SIX Swiss Exchange, London Stock Exchange) is three times higher than the level of on-exchange turnover. The significance of this is that popular data provision services (such as Bloomberg and Reuters) do not account for off-exchange turnover thus giving the impression that turnover volumes are lower than what they actually are.
The level of off-exchange activity differs among the three exchanges that openly report off-exchange trades, with the biggest of the three, Deutsche Borse leading with 80% of trading occurring off-exchange. This is followed by the London Stock exchange, registering close to 60% of its ETP turnover activity off-exchange. The SIX Swiss exchange registers roughly 25% of its ETP trades off the exchange. Combining all three exchanges, 60% of ETP turnover activity has occurred off-exchange historically, with May month end levels closer to 75%.
Global ETP product launch calendar: Europe leads Q2’10 new product launches
The second quarter of the year registered 173 new product launches, the majority of which were ETFs (130), with the remainder being ETCs (41) and ETVs (2). Most of the new products were launched in Europe (110), with the US (47) and Asia (16) in second and third places respectively. This brings the total new ETP products launched to date in 2010 at 405, following the 232 ETPs launched in Q1’10.
ETPs targeting equity benchmarks led the pack (103), with fixed income (24) following and commodities third (23). Currency ETPs had a particularly strong quarter with 22 products being launched in Europe on a number of pair currencies. Just over three quarters of the products launched target long benchmark indices (135), with the remainder targeting short (18) and leveraged (20) benchmark indices
ETP research universe revision
Our core coverage universe is exchange-traded funds and our aim is to produce research that can facilitate informed decision making across asset classes. As legislation stands today, both in the US and Europe, the vast majority of ETFs may only track equity and fixed income benchmarks. When making investment decisions and in the interest of constructing efficient portfolios, investment managers look for uncorrelated return sources. Therefore, recognizing both the need to make decisions utilizing information across asset classes, and at the same time, the secure/funded nature of ETFs, we are continuing to include in our coverage universe exchange-traded funds (ETFs), Exchange-Traded Commodities (ETCs, Europe) and Exchange-Traded Vehicles (ETVs, US), however, we will be reporting ETNs separately going forward.
ETNs in our reported universe are close to $10.0 billion as of the end of Q2’10 (Figure 52). The impact of their exclusion from our reported universe will be therefore immaterial (less than 1%) in terms of AUM. The impact is more noticeable in terms of product count, we currently include 273 ETN products in our reported universe. Excluding them will reduce the total ETP product count by 10.3% to 2,379 products, down from 2,652.
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Source: Christos Costandinides-Deutsche Bank - Equity Research
Deutsche Bank’s Exchange Traded Commodity Platform Lists Ten New ETCs On LSE
July 12, 2010--Deutsche Bank’s Exchange Traded Commodity (db ETC) platform today announces the listing of ten new Exchange Traded Commodities (ETCs) on the London Stock Exchange.
The new ETC range enables investors to gain simple and efficient exposure to a wide spectrum of commodities. This includes the db Physical Gold ETC and the db Physical Silver ETC that are backed by the relevant precious metal being tracked by the ETC.
Also being launched are a range of index linked ETCs such as the db S&P GSCI Industrial Metals ETC and db Energy Booster ETC which are unique because the exposures to the swap transactions incorporated in these ETCs are fully collateralised with physical gold.
: Another distinguishing feature of some of the index linked ETCs is that they are linked to Deutsche Bank’s Optimum Yield commodity indices. The indices underlying ETCs are typically linked to the performance of a basket of commodity futures contracts. Due to the costs (or gains) associated with “rolling” commodity futures contracts (i.e. selling a maturing contract and buying a new one) there may be a divergence between the spot and future price of a commodity. The “Optimum Yield” technique represents a way of investing into commodities with the aim of minimising such costs (or maximising gains) from the “rolling” of commodity futures contracts. The index linked ETCs which utilise the Optimum Yield technique have the word “Booster” in their name.
All of the db ETC products have competitive fees and are offered with full liquidity through Deutsche Bank which acts as market maker for all of the products. These ten new db ETC products add to the range of 19 which were listed on Xetra Frankfurt earlier this year.
Deutsche Bank Exchange Traded Product (ETP) research shows that the ETC market is one of the fastest growing investment segments in the ETP market. Total assets in ETPs across Europe grew by 145% in 2009, compared to only 43% in equities and 17% in fixed income.
David Silbert, Global Head of Commodities at Deutsche Bank said, “The ETC platform offers investors a simple, efficient and liquid way to gain exposure to a wide range of commodities at a competitive price. We anticipate strong demand for these products.”
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Source: Mondovisione
UK slump deeper than thought, gov’t spending key in Q1
July 12, 2010--Britain’s record recession was even deeper than previously thought, and the economy could still have contracted in the first quarter of this year were it not for hefty government spending, official data showed on Monday.
The Office for National Statistics left its earlier estimate of first-quarter growth unrevised at 0.3 percent, giving an unchanged annual decline of 0.2 percent.
Britain faces mixed prospects for the second quarter, after data released at the same time showed that services output contracted 0.3 percent in April, the biggest fall since January.
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Source: Todays Zaman
Risk and Trend Mapping No9 - 2010 risk and trend mapping for financial markets and retail savings
July 12, 2010--Introduction
Risks identified and action taken in 2009
From the financial crisis to the economic crisis
The AMF published its previous risk and trend mapping study in June 2009, when markets conditions were still
highly volatile. The report highlighted the tensions prevailing in credit markets and the considerable uncertainty
about future changes in asset prices and the balance sheets of banking and financial intermediaries. Accordingly,
when monitoring the financial crisis, the AMF paid special attention to financial reporting by banks and the
application of accounting standards.
Moreover, the sharp deterioration in post-crisis economic conditions created
specific problems involving market disclosures by struggling companies and the enforcement of standards,
especially in the event of breaches of covenants. Some companies carried out capital raising exercises in very short
timeframes, which led to particular problems when processing their requests for regulatory approval. In this harsh
economic environment, there were almost no initial public offerings in 2009 (apart from one major flotation at
year's end) and very few tender offers – a similar pattern to 2008. By contrast, fundraising through rights issues and convertible bond issuance reached record levels, especially for large capitalisation companies.
The 2009 report also pointed to operational risk in the over-the-counter (OTC) market for derivatives, particularly credit derivatives, caused by a lack of robust post-trade procedures. In accordance with the recommendations of the G-20, the international financial community made major efforts in this respect, under the guidance of regulators; and these initiatives are ongoing in 2010. The AMF chairs the Post-Trading Standing Committee of the Committee of European Securities Regulators and is monitoring projects involving clearing houses and trade repositories in connection with the forthcoming legislative proposal from the European Commission on clearing and settlement. The AMF is also contributing to the review of the CPSS-IOSCO standards.
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Source: AMF
CESR launches a consultation on the advice to the Commission in the context of the MiFID Review – Client Categorisation
July 12, 2010--In the context of its review of the Markets in Financial Instruments Directive (MiFID), the European Commission (EC) posed a series of questions to CESR. The purpose of this consultation is to gather stakeholders’ views on client categorisation issues to assist CESR in its responses to the Commission’s questions on these issues.
The main points in this consultation paper are under the following three headings:
Technical criteria to further distinguish within the current broad categories of clients [“other authorised or regulated financial institutions”, “locals”, “other institutional investors” (Annex II.I(1) (c), (h), (i) of MiFID)]: Part 1 of the consultation paper asks whether distinctions should be made between regulated entities for the purposes of determining which entities are to be treated as “per se” professional clients.
Public debt bodies: Part 2 of the consultation paper asks whether it is necessary to clarify, for the purposes of the client categorisation regime, whether local authorities/municipalities can be treated as public debt bodies.
Other client categorisation issues: Part 3 of the consultation paper asks whether tests of knowledge and experience should be used more widely for client categorisation than is currently the case, whether for very complex products (such as asset backed securities and non-standard OTC derivatives) the scope of the eligible counterparty categorisation should be narrowed and what standards should apply to transactions done with eligible counterparties.
Responses to the consultation paper should be submitted online in the section Consultations by 9 July 2010.
view consultation paper
Source: CESR
NYSE Euronext And Warsaw Stock Exchange Announce Strategic Partnership
Warsaw bourse to acquire state-of-the-art cash and derivatives trading platform provided by NYSE Technologies™ as part of a multi-year business partnership
Aims to strengthen WSE’s position as a regional hub for CEE
Brings the potential to open WSE products to NYSE Euronext’s SFTI connected community
Offers an order routing link to the leading market venue in the CEE region July 12, 2010--NYSE Euronext (NYX) and the Warsaw Stock Exchange (WSE) today announced the establishment of a strategic, long-term cooperation agreement covering the development of future mutually-beneficial business initiatives and the migration of WSE markets to NYSE Technologies™ Universal Trading Platform. Financial terms were not disclosed.
As part of a multi-year commercial agreement, NYSE Euronext will provide WSE with the Universal Trading Platform for its cash and derivative markets. Both parties will explore new trading, market data and business development initiatives serving investors and issuers of a wide range of financial instruments. NYSE Technologies, the commercial technology unit of NYSE Euronext, will deliver the Universal Trading Platform and work with WSE to develop new IT-based opportunities in Poland and the Central and Eastern Europe region. This will build on the distribution capabilities of SFTI™ and further broaden the community of SFTI connected markets.
“NYSE Euronext welcomes this partnership with the Warsaw Stock Exchange, a regional leader that is well positioned for further growth and success, said Duncan L. Niederauer, Chief Executive Officer, NYSE Euronext. I am thrilled that the WSE has selected NYSE Euronext at this critical point in its international strategy. We look forward to working together on this and other initiatives to benefit our respective markets, customers and stakeholders.”
“The undertaking we are now starting with NYSE Euronext is, without any doubt, one of the most significant moves aimed at developing the WSE further as an international market place, said Ludwik Sobolewski, Chief Executive Officer, Warsaw Stock Exchange. It is a direct consequence of the strategy adopted and implemented by the WSE Board in recent years. We are at the very beginning as regards the strategic partnership, but this beginning comes at a very appropriate moment, complementing other, already much more advanced endeavours. ”
Dominique Cerutti, President and Deputy Chief Executive Officer of NYSE Euronext, said, “Our relationship with WSE goes back many years and we are excited to both further our partnership and to serve such an important role in its future success by applying our technology assets and expertise. WSE’s decision to use the NYSE Euronext Universal Trading Platform enables our partner to take full advantage of our investment in innovative exchange solutions and communications infrastructure.”
Source: NYSE Euronext
New Standard Commodities Gold ETC Launched on Xetra
July 9, 2010-- A further gold ETC issued by the provider Standard Commodities Limited, the ETC platform of the Royal Bank of Scotland, has been tradable on Xetra since Friday.
ETC name: Standard Commodities Goldtracker
Asset class: commodities
ISIN: DE000A1ESY66
Management fee: 0.28 percent
Benchmark: London Gold Market AM fix price
The Standard Commodities Goldtracker is aimed primarily at institutional investors and tracks the performance of the London Gold Market AM fix price in US dollars. It is an exchange-traded bond that is backed by physically deposited gold in accordance with the LBMA standard.
Deutsche Börse’s ETC segment currently comprises 172 products. The monthly trading volume of ETCs on Xetra averages around €550 million.
Source: Deutsche Börse
Increasing demand may lower gold prices, says council official
July 9, 2010--World Gold Council Turkey President Cihan Göksel has said skyrocketing gold prices could drop gradually following an anticipated increase in demand from both domestic and foreign markets.
Speaking to reporters in ?stanbul on Friday, Göksel said that although it is too early to say anything definitive, a price drop can be expected in the long run, triggered by a recovery in demand. “World markets have maintained a steady growth in demand for gold, and such a trend is expected to continue in the months to come,” he said, noting that gold still remains one of the safest investment tools in markets and that such confidence is expected to increase.
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Source: Todays Zaman
Head of Issuer and Investor Markets Martin Steinbach leaves Deutsche Börse Group
July 9, 2010--Martin Steinbach (43), since 2000 with Deutsche Börse Group, Head of Issuer and Investor Markets and Executive Director left Deutsche Börse
surprisingly at his own request, to take a new perspective. With Steinbach (holds a Master of Business Administration and a Ph.D.) Deutsche Börse looses an experienced
manager and international expert in the primary market.
We regret Steinbachs decision and would like to thank him for his longstanding
contributions creating and developing a vital primary- and secondary market
for issuers, campaign management towards investors and his engagement for the cash market. We wish him all the best for his future career”, said Frank Gerstenschläger, board member, responsible for XETRA.
Source: Deutsche Börse
German regulator calls for regular stress tests for investment companies
July 9, 2010-- German regulator BaFin has unveiled new guidelines for German investment companies (KAGs) that will force them to conduct regular stress tests.
The new rules governing risk management for investment companies (InvMaRisk) were drawn up after changes to German investment law in 2007 meant the banking code MaRisk no longer applied to KAGs.
Arno Kempf, a partner specialising in financial services at PricewaterhouseCoopers, said implementing a strict risk management system was in everyone's interest, as it affected a KAG's bottom line.
"For example," he said, "the company itself is exposed (indirectly) to any financial risk involved in fiduciary management, as it affects all administration fees and, finally, the company's balance sheet."
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Source: IP&E
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