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Euro Area: Restoring Confidence Key to Growth
IMF Survey online
July 21, 2010
Credible bank stress tests essential to restore confidence
Action needed to establish fiscal sustainability and restore growth
Wake-up call to strengthen area-wide economic governance
Before the euro area economy could recover firmly from the global crisis, it was hit by market concerns related to the sovereign debt of some of its members.
The turmoil has clouded the prospect of a strong regional and global recovery, with the IMF now projecting average growth of just 1 percent for 2010, rising to 1¼ percent in 2011.
Strong action by members of the European Union to establish a European Stabilization Mechanism to help countries in difficulty has helped calm markets, as has austerity plans announced by a number of countries, including Greece, Ireland, Spain, and Portugal. The European Central Bank (ECB) has also proved to be an anchor of stability throughout the crisis. Following much debate, the results of bank stress tests conducted on a large set of banks in the 27-member European Union will now be published on July 23. Successful tests should allay market concerns about the health of major European banks, and boost confidence in the euro area.
view the report-Euro Area Policies-Staff Report for the 2010 Article IV Consultation with Member Countries
Source: IMF
ETF Landscape: STOXX Europe 600 Sector ETF Net Flows, week ending 16-Jul-10
July 21, 2010--Last week saw US$263.9 Mn net outflows from STOXX Europe 600 sector ETFs. The largest sector ETF outflows last week were in Basic Resources with US$179.5 Mn and Media with US$49.6 Mn while Banks experienced net inflows of US$46.1 Mn.
Year-to-date, STOXX Europe 600 sector ETFs have seen US$684.5 Mn net outflows. Telecommunications sector ETFs have seen the largest net outflows with US$224.1 Mn, followed by Basic Resources with US$176.8 Mn while Media has experienced the largest net inflows with US$212.7 Mn net new assets YTD.
The assets invested in the ETFs are greater than the open interest in the corresponding futures contract in 18 out of 19 sectors.
to request report
Source: Global ETF Research & Implementation Strategy Team, BlackRock
Focusing on Booming Threshold Countries
ETFlab with two new emerging market funds
ETFlab MSCI China (ISIN: DE 000 ETF L32 6)
ETFlab MSCI Emerging Markets (ISIN: DE 000 ETF L34 2)
July 20, 2010--ETFlab Investment GmbH, the Munich specialist for exchange traded funds, is
offering two new threshould country index funds. The ETFlab MSCI China comprises a broadly
diversified basket of stocks of Chinese companies traded in Hongkong. The ETFlab MSCI Emerging
Markets tracks a broadly diversified portfolio of companies listed on the stock exchange of 21
threshold countries. “Thus we provide an access to the fastest-growing regions of the world“,
Andreas Fehrenbach, ETFlab’s managing director, points out. “Investors wishing to achieve aboveaverage
returns must engage there.“
The demand for the funds of threshold countries has increased significantly following the financial crisis. Dr. Ulrich Kater, the chief economist of DekaBank asserts: „The emerging markets have drawn their lessons from former economic and financial crises and have for the most part chosen to
follow a solid fiscal course.” In addition, Kater sees the sustainability of the strong economic growth:
“In the years to come, the development will be supported by two demographic trends: On the one
hand, there is a continuous strong population growth, on the other hand, the migration into the cities
will continue unchanged.”
The ETFlab MSCI China puts high value on high liquidity and broad coverage of the overall market. With currently 123 assets it represents 85 per cent of the market capitalization and has been the most comprehensive China index fund traded in Germany up to now. The highest weighted stocks are financial assets (38 %), providers (16.9 %) and telecommunications services providers (12.6 %). The ETF tracks the index in a fully replicating manner, which means that the original securities are contained in the fund assets, which are in compliance with the UCITS III guidelines. The management fee is 0.65 per cent annually. Dividend payout takes place up to four times per year.
The index tracked by ETFlab MSCI Emerging Markets comprises currently 756 individual companies the stocks of which are traded on the stock exchanges of 21 threshold countries. The highest weighted of them are issues from China (19 %), Brazil (16 %), and South Korea (13 %). The index they are based on has the form of a performance index. Any accruing dividends will be retained. Tracking is performed by means of swaps. DekaBank, Deutsche Girozentrale, was chosen as a Swap partner. The management fee is 0.65 per cent annually.
Both ETFs will be listed continuously on the XETRA and Stuttgart stock exchanges, as of July 20.
Source: ETFlab
Deutsche Börse to target pension funds directly
July 20, 2010-- Stock exchange operator Deutsche Börse wants to "increase direct business with institutional investors", including pension funds, according to chief executive Reto Francioni
The Deutsche Börse, which runs the Frankfurt Stock Exchange, is preparing to compete with German banks and asset management houses as "a neutral and independent" service provider, Francioni said.
However, he pointed out it was not so much about competition as widening the range of available products and said the Deutsche Börse group did not want to disgruntle any existing clients.
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Source: IP&E
Two New ETFlab Equity Index ETFs Launched on Xetra
July 20, 2010--Deutsche Börse continues to expand its XTF segment for exchange-listed index funds. Two new ETFs issued by ETFlab have been tradable on the pan-European platform Xetra since Tuesday.
ETF name: ETFlab MSCI China
Asset class: equity index ETF
ISIN: DE000ETFL326
Management fee: 0.65 percent
Distribution policy: distributing
Benchmark: MSCI China
ETF name: ETFlab MSCI Emerging Markets
Asset class: equity index ETF
ISIN: DE000ETFL342
Management fee: 0.65 percent
Distribution policy: non-distributing
Benchmark: MSCI Emerging Markets
The ETFlab MSCI China ETF tracks the performance of the MSCI China Index, which comprises companies from the MSCI China H, China B, China Red Chip and China P Chip sub-indices. Investors can participate via a single transaction in the performance of the around 50 largest and best-performing Chinese companies listed on the Hong Kong Stock Exchange.
The ETFlab MSCI Emerging Markets ETF tracks the performance of the MSCI Emerging Markets Index. The index contains companies from emerging market countries Brazil, Chile, China, Columbia, the Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Morocco, Mexico, Peru, the Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. The index tracks approximately 85 percent of market capitalization in the total market.
The product offering in Deutsche Börse’s XTF segment currently contains a total of 682 exchange-listed index funds, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of €14 billion, makes Xetra Europe’s leading trading venue for ETFs.
Source: Deutsche Börse
First ETFs on commodities on the Spanish Stock Exchange
Recent regulatory changes allow further progress in the development of the segment
July 20, 2010--The Spanish stock exchange today launched trading in two new exchange traded funds (ETFs) which, for the first time in Spain, are linked to commodities as underlying assets. The new exchange traded funds were issued by Lyxor Asset Management. With these, there are now 43 ETFs listed on the Spanish stock exchange.
Recent regulatory changes have broadened the range of underlying assets in the ETF segment. The listing, today, of two indices linked to a wide range of commodities adds to the traditional offering of equity and fixed income indices. In this way, the Spanish stock exchange makes available to investors new investment and portfolio diversification opportunities against a backdrop of high transparency and efficiency.
7 July marked the fourth anniversary of the start of the Spanish stock exchange’s ETF segment. During this time, ETFs on the Spanish market have performed spectacularly. Trading in the first half of 2010 totalled over €4.39 billion, up 188% from the same period in 2009.
ETFs are fund-share hybrid investment vehicles that combine the diversification of a fund's portfolio and the flexibility offered by share trading. ETFs have opened a broad array of investment opportunities, for institutional and retail investors alike, as they allow investors to gain exposure to countries, regions, sectors and different asset classes through a single stock exchange transaction, in real time and at a lower cost lower than that of other investment vehicles.
Source: Bolsa de Madrid
Newsflash - Dividend derivatives open interest exceeds 1 million contracts
July 20, 2010-- The international derivatives exchange Eurex has for the first time exceeded the 1 million mark in open interest on its dividend product suite. Dividend futures and options contracts outstanding as at 19 July stood at 1,010,417 which represent a nominal value in excess of 6.2 billion euro of the dividend payments of European blue-chip companies.
Dividend based derivatives are a relatively new asset class and Eurex was the first exchange globally to launch equity index dividends in summer 2008. Open interest of the dividend index derivatives stands above 636,000 contracts. Dividend contracts on single stocks were introduced in January 2010, they have already amassed 374,000 contracts in open interest in the first half year of trading.
Source: Eurex
First Trade in EUA Futures for the Third European Emissions Trading Period
Positive Development on the Derivatives Market for EUA Futures
July 20, 2010-- On Friday, 16 July 2010, the first trade in EUA Futures for the Third European Trading Period was concluded on the market for emission rights operated by European Energy Exchange AG (EEX) and Eurex.
The volume traded comprised 25,000 EUA for delivery in the year 2013 and the trades were concluded between RWE and CEZ. Since 30 June of this year it has been possible for the EEX and Eurex trading participants to trade EUA futures for delivery in the years 2013 and 2014 in addition to the existing contracts.
Positive Development on the Derivatives Market for EUA Futures
In June, the volume on the EEX Derivatives Market for CO2 emission allowances increased considerably as against the previous months. In total, 17,453,000 EUA were traded in June (June 2009 1.696.000 EUA) with derivatives trading on the secondary market accounting for 14,603,000 EUA. This positive trend has continued in July.
The measures taken by EEX and Eurex to strengthen emissions trading contribute to this positive development in trading turnover. For example, EEX has recently extended the trading hours for emission futures on the exchange and has lowered the transactions fees on the Derivatives Market for Emissions until the end of December.
EEX and Eurex offer their participants a platform for trading in EUA Futures, CER Futures and options on EUA Futures. Within the framework of this cooperation, which was launched in December 2007, Eurex participants can trade the CO2 derivatives products listed on EEX through their existing infrastructure and a simplified admission process.
Source: Eurex
Derivatives reform to punish property industry
July 20, 2010--The European Union’s proposed reform of over-the-counter derivatives markets is intended to reduce the systemic risk caused by speculative use of derivatives, typically by hedge funds and other financial institutions. It was assumed those using derivatives for bona fide hedging and prudent risk management purposes would be excluded from the margin requirements that the new regulations would demand. However, it is now becoming clear that the European property industry risks being one of the biggest victims of regulatory overreach.
Regulators on both sides of the Atlantic want to see the majority of derivatives cleared by central counterparties. This would reduce systemic risk by requiring that a derivative counterparty maintains a cash reserve, or “margin”, equal to the potential liability under the contract in the event of a default, an eminently sensible precaution in relation to speculative trading of derivatives.
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Source: FT.com
The European Commission could pull the plug on shareholder engagement unless owners step up
EC Green Paper is sceptical about shareholder oversight to prevent another financial crisis
July 20, 2010--You could be forgiven, on the basis of recent developments, for thinking that we are about to enter a new era of shareholder engagement. The UK’s decision to press ahead with the introduction of a Stewardship Code for institutional investors, to mirror the Corporate Governance Code for public companies, does seem to enshrine the shareholder-oversight approach to governance.
Meanwhile the Financial Services Authority is currently consulting on how to require asset managers to disclose the nature of their commitment, or otherwise, to the Stewardship Code, which will give the initiative a little regulatory bite. Finally, it seems, the need for shareholders to act like owners is given some official backing. However, it doesn’t look like everyone agrees that this is the right approach to take to reform in the wake of the financial crisis. One document in particular is causing a few waves in the governance community – the European Commission’s Green Paper on corporate governance in financial institutions.
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Source: Responsible Investor
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